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E 6-5 General questions [Based on AICPA] 1. On January 1, 2016, Pam Company sold equipment to its wholly owned subsidiary, Sun Company, for $1,800. The equipment cost Pam $2,000. Accumulated depreciation at the time of sale was $500. Pam was depreciating the equipment on the straight-line method over 20 years with no salvage value, a procedure that Sun continued On the consolidated balance sheet at December 31, 2016, the cost and accumulated depreciation, respectively, should be: a $1,500 and $600 b $1,800 and $100 C$1,800 and $500 d $2,000 and $600 are: 2. In the preparation of consolidated financial statements, intercompany items for which eliminations will not be made a Purchases and sales where the parent employs the equity method Receivables and payables where the parent employs the cost method c Dividends received and paid where the parent employs the equity method Dividends receivable and payable where the parent employs the equity method 3. Pam Corporation owns 100 percent of Sun Corporation's common stock. On January 2, 2016, Pam sold to Sun for $40,000 machinery with a carrying amount of $30,000. Sun is depreciating the acquired machinery over a five-year life by the straight-line method. The net adjustments to compute 2016 and 2017 consolidated income before income tax would be an increase (decrease) of: 2016 2017 $ (8,000) $2,000 b (8,000) $ 0 $(10,000) $2,000 $(10,000) $ 0 4. Pam Company owns 100 percent of Sun Company. On January 1, 2016, Pam sold Sun delivery equipment at a gain. Pam had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Sun is using a three-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Sun's recorded depreciation expense on the equipment for 2016 will be decreased by: a 20% of the gain on sale b 33.33% of the gain on sale c 50% of the gain on sale d 100% of the gain on sale

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