Paul Corporation

Paul Corporation - overstated on January 1, 2012 by $700....

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Paul Corporation (the parent) owned a truck with an original cost of $12,000. It had been  depreciated for $7,500 in the last 5 years on the straight-line method with 8 years of life and no  salvage value. On January 1, 2011, Paul sold the truck to Sadine Company (a 75%-owned  subsidiary) for $5,200. From a consolidated point of view, which company’s retained earnings  was overstated or understated on January 1, 2012? By how much and why? From   a   consolidated   point   of   view,   the   retained   earnings   for   Paul   Corporation   was 
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Unformatted text preview: overstated on January 1, 2012 by $700. $12,000 (Original Cost) - $7,500 (Accumulated Depreciation) = $4,500 (Book Value) $5,200 (Sales Price) - $4,500 (Book Value) = $700 Gain on Sale of Asset Since Paul Corporation owns 75% of Sadine Company, the $700 gain on sale of asset is not realized since it is not an arm’s length transaction...
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This note was uploaded on 03/23/2012 for the course ACCT 306 taught by Professor Mikewoodard during the Spring '12 term at DeVry Houston.

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