Lewis Company owns 80 percent of Tomassini Corporation’s stock. You are told that Tomassini has sold equipment to Lewis and that the following consolidation entries are needed to prepare consolidated statements for 20X9:

Which of the following is incorrect?

a. The parent paid $40,000 in excess of the subsidiary’s carrying amount to acquire the asset.

b. From a consolidated viewpoint, depreciation expense as Lewis recorded it is overstated.

c. The asset transfer occurred in 20X9 before the end of the year.

d. Consolidated net income will be reduced by $40,000 when these consolidation entries are made.

Transcribed Image Text:

Equipment Gain on Sale of Equipment Accumulated Depreciation 20,000 40,000 Accumulated Depreciation Depreciation Expense 5,000 60,000 page 364 5,000