Items 1 and 2 are based on the following:
Scroll, Inc., a wholly owned subsidiary of Pirn, Inc., began operations on January 1, 2006. The following information is from the condensed 2006 income statements of Pirn and Scroll:
|
Pirn |
Scroll |
||
|
Sales to Scroll |
$100,000 |
$ |
— |
|
Sales to others |
400,000 |
300,000 |
|
|
500,000 |
300,000 |
||
|
Cost of goods sold: |
|||
|
Acquired from Pirn |
— |
80,000 |
|
|
Acquired from others |
350,000 |
190,000 |
|
|
Gross profit |
150,000 |
30,000 |
|
|
Depreciation |
40,000 |
10,000 |
|
|
Other expenses |
60,000 |
15,000 |
|
|
Income from operations |
50,000 |
5,000 |
|
|
Gain on sale of equipment to Scroll |
12,000 |
— |
|
|
Income before income taxes |
$ 62,000 |
$ |
5,000 |
Additional information
- Sales by Pirn to Scroll are made on the same terms as those made to third parties.
- Equipment purchased by Scroll from Pirn for $36,000 on January 1, 2006, is depreciated using the straight-line method over four years.
In Pirn’s December 31, 2006, consolidating worksheet, how much intercompany profit should be eliminated from Scroll’s inventory?
- $30,000
- $20,000
- $10,000
- $ 6,000
What amount should be reported as depreciation expense in Pirn’s 2006 consolidated income statement?
- $50,000
- $47,000
- $44,000
- $41,000