On January 1,20X7,Server Company purchased a machine with an expected economic life of five years.On January 1,20X9,Server sold the machine to Patron Corporation and recorded the following entry:
Patron Corporation holds 75 percent of Server's voting shares.Server reported net income of $50,000,and Patron reported income from its own operations of $100,000 for 20X9.There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer.
-Based on the preceding information,in the preparation of the 20X9 consolidated balance sheet,machine will be:
A)debited for $1,000.
B)debited for $15,000.
C)credited for $45,000.
D)debited for $25,000.

Question

On January 1,20X7,Server Company purchased a machine with an expected economic life of five years.On January 1,20X9,Server sold the machine to Patron Corporation and recorded the following entry:
  Patron Corporation holds 75 percent of Server's voting shares.Server reported net income of $50,000,and Patron reported income from its own operations of $100,000 for 20X9.There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer.
-Based on the preceding information,in the preparation of the 20X9 consolidated balance sheet,machine will be:
A)debited for $1,000. 
B)debited for $15,000. 
C)credited for $45,000. 
D)debited for $25,000.

Quizplus · Accepted Answer

Since the machine was sold by Server to Patron in 20X9, it will be eliminated from Server's balance sheet and recorded as a gain or loss on the sale in the consolidated financial statements. The machine's carrying value on January 1, 20X9, would be its original cost minus accumulated depreciation for the two years of its use (2/5 * cost). Assuming straight-line depreciation, the carrying value of the machine would be $25,000 (5/5 * $50,000 - 2/5 * $50,000). Therefore, the machine will be debited for $25,000 in the preparation of the 20X9 consolidated balance sheet.

On January 1,20X7,Server Company Purchased a Machine with an Expected