Dunn Corp. owns 100% of Grey Corp.â€™s common stock. On January 2, Year 3, Dunn sold to Grey for $40,000 machinery with a carrying amount of $30,000. Grey is depreciating the acquired machinery over a 5-year life by the straight-line method. The net adjustments to compute Year 3 and Year 4 consolidated income before income tax are an increase (decrease) of:

Question

Rory Mcconnell

Business

7 April, 14:06

Dunn Corp. owns 100% of Grey Corp.â€™s common stock. On January 2, Year 3, Dunn sold to Grey for $40,000 machinery with a carrying amount of $30,000. Grey is depreciating the acquired machinery over a 5-year life by the straight-line method. The net adjustments to compute Year 3 and Year 4 consolidated income before income tax are an increase (decrease) of:

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Kaia Mccormick · Answer 1

Year 3 (8,000)

Year 4 2,000

Explanation:

Year 3

we remove the gain at disposal: (10,000)

and we remove the portion of depreciation forthis amount:

10,000 / 5 = 2,000

Net adjusment (8,000)

Year 4

we remove the additional depreciation which arise from the intra-entity sale: 2,000