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: Cash 45,000 Accumulated Depreciation 28,000 Machine 70,000 Gain on Sale of Equipment 3,000 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:

Answer 1

Based on the information given for Server Company, the machine will be valued at $42,000 and the machinery account will be credited.

What would be the value of the machine?

The machine was sold on January 1, 20X9 and at that point, the accumulated depreciation was $28,000.

The value of the machine was therefore:

= Cost of machine - Accumulated depreciation

= 70,000 - 28,000

= $42,000

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