[Mike J]

NINJA Question –

Hello all,

The following question has me stumped.

…

Zest Co. owns 100% of Cinn, Inc. On January 2, 20X1, Zest sold equipment with an original cost of $80,000 and a carrying amount of $48,000 to Cinn for $72,000. Zest had been depreciating the equipment over a 5-year period using straight-line depreciation with no residual value. Cinn is using straight-line depreciation over three years with no residual value. In Zest’s December 31, 20X1, consolidating worksheet, by what amount should depreciation expense be decreased?

The answer is 8.

…

I’ve been using the Bisk Videos (aka NINA Plus). According to the notes I wrote while watching, I have the journal entries:

(a) Adjust the Asset to its proper carrying value
Dr: PP&E [Sales Price – cost]
Cr: Loss on Sale
(b) Adjust the Depreciation Expense
Dr: Depr Exp [Loss/Gain (a) / useful life x mm/12]
Cr: Gain/Loss on Sale of Equip

To make sure I understand this correctly, is the second journal entry what the question is calling for?

Consolidations have always given me a little trouble. Admittedly, I wrote the journal entries out while not completely understanding the video.

Thanks.

[Mike J]

Edit: As per NINJA, the solution set was the following:

80,000 original cost – 72,000 selling price = 8,000.

I thought we needed to amortize.

Perhaps I read the question wrong but can someone can clarify what I'm missing?

Thanks.

[Author]

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