Chapter 5, Problem 9P

Thomson Corporation owns 70 percent of the outstanding stock of Stayer, Incorporated. On January 1, 2016, Thomson acquired a building with a 10-year life for $460,000. Thomson depreciated the building on the straight-line basis assuming no salvage value. On January 1, 2018, Thomson sold this building to Stayer for $430,400. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2018, how does this transfer affect the computation of consolidated net income?

1. a. Net income is reduced by $62,400.
2. b. Net income is reduced by $59,440.
3. c. Net income is reduced by $70,200.
4. d. Net income is reduced by $54,600.