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Virtuosobg
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Joined: 18 Jan 2011
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Posts: 19

Posted: 29 Jan 2011 at 20:21 \| IP Logged

I'm having trouble with this question because the depreciation doesn't quite line up.

Here is the question...
On Jan 1, Year 10, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy which Saxe continued. In Poe's December 31, Year 10, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as:
           Cost                 A/D
a.         1,100,000      $300,000
b          $1,100,000     $290,000
c          $900,000         $40,000
d          $850,000        $42,500

The correct answer is A. The problem I have is with the A/D figure given in the problem. Shouldn't they have nine years of A/D at 50000 per year? (1,100,000 - 100,000) / 20 = 50000 * 9 = 450,000

Therefore i think the correct answer should be $1,100,000 and $500,000

Let me know where I went wrong...

BG

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Virtusoobg

chantel916
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Joined: 02 Aug 2009
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Posted: 29 Jan 2011 at 23:50 \| IP Logged

I think you are looking at the year but you should just be looking at the A/D listed in the problem.

So you have (1,100,000-100,000)/20 = 50k/yr A/D
At 1/1/yr 10 you have A/D of 250k
At 12/31/yr 10 1 year has passed so you need to add 50k to your A/D
12/31/yr 10 A/D = 250k+50k=300k

And you already have that cost is the amount you paid of $1,100,000

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yukagin
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Joined: 03 Jun 2010
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Posted: 04 Feb 2011 at 00:15 \| IP Logged

just did that question. tricky.

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REG82,BEC79,FAR 5/31/11 (waiting)

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