1. A parent company sells equipment to its subsidiary on January 1, 2018 for $90,000. At the time, the equipment was reported on the parent's books at a net book value of $60,000. The remaining life of the equipment as of January 1, 2018 is six years, and straight-line depreciation, no residual value is used. At what net value should this equipment be reported on a December 31, 2020 consolidated balance sheet (three years after the intercompany equipment sale)? A. $90,000 B. $30,000 C. $45,000 D. $40,000

The correct answer is B.

Explanation:

Giving the following information:

At the time, the equipment was reported on the parent's books at a net book value of $60,000. The remaining life of the equipment as of January 1, 2018, is six years, and straight-line depreciation, no residual value is used.

To calculate the annual depreciation, we need to use the following formula:

A) Annual depreciation= (book value) /estimated life (years)

Annual depreciation= 60,000/6= 10,000

Value on December 31, 2020:

Book value= original value - accumulated depreciation

Book value= 60,000 - 10,000*3= 30,000