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Play Inc. owns 100% of Station Corp.'s common stocks. On January 1, 2015, Play sold to Station for $50,000 an equipment with a carrying amount of $30,000. Station is depreciating the equipment over a 5-year life using the straight-line method. Describe the two adjustments and provide the amounts made in 2015 consolidated income statement.

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Answer:

There is unrealised profit on the equioment sold by Play inc to Statetion Corp.

the Adjustment include

  • Deduct net unrealised profit of $16,000  from Equipment
  • Deduct net unrealised profit of $16,000 from  Group(consolidated )retained earnings.

Amount to be recognized as unrealized profit in the consolidated income statement is $16,000

Explanation:

Computation of Net unrealized profit

Unrealized profit ( $50,000 - $30,000)                       20,000

Depreciation on Unrealized profit( 20,000/5)                (4,000)

Net unrealized profit                                                         16,000

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