Asked by Darrious Gaines on Jul 09, 2024
Verified
TLC Homecare Ltd. owns 100% of Errand Service for Seniors Ltd. (ESS) . On January 2, 20X1, TLC bought 12 identical cars for $300,000. It promptly sold four of the cars to ESS for $112,000. ESS will amortize the cars over five years using the straight-line method. At December 31, 20X2, what is the net adjustment that should be made to accumulated depreciation in TLC's consolidated financial statements? Ignore income taxes.
A) $0
B) Reduction of $2,400
C) Reduction of $4,800
D) Reduction of $5,600
Accumulated Depreciation
The cumulative depreciation of an asset up to a single point in its life, reflecting the decrease in value due to wear and tear, age, or obsolescence.
Consolidated Financial Statements
Financial statements that represent the aggregation of a parent company and its subsidiaries, presenting the financial position and results of operations as if the group were a single entity.
- Execute the necessary adjustments for depreciation and amortization in consolidating assets transacted between companies in affiliation.
Verified Answer
AA
Andrew AlemanJul 14, 2024
Final Answer :
C
Explanation :
Since ESS will amortize the cars over five years using the straight-line method, the annual amortization amount will be ($112,000/4) $28,000, for a total of $56,000 over the two years. The net adjustment that should be made to accumulated depreciation in TLC's consolidated financial statements would then be $56,000 - ($300,000/5*2) $60,000 = a reduction of $4,800. Therefore, the best choice is C.
Learning Objectives
- Execute the necessary adjustments for depreciation and amortization in consolidating assets transacted between companies in affiliation.