Pon Corporation sold an office building to its 90 percent-owned subsidiary, Son Corporation, for $120,000 on December 31, 2016. The cost of the building to Pon was $100,000, the book value at the time of sale was $80,000, and the building had a remaining useful life of four years.
1. How will the intercompany sale affect Pon’s income from Son and Pon’s net income for 2016?
a Pon’s income from Son will decrease, and its net income will not be affected.
b Neither Pon’s income from Son nor its net income will be affected.
c Pon’s income from Son will increase, and its net income will not be affected.
d Pon’s income from Son will not be affected, but its net income will decrease.
2. How will the consolidated assets and consolidated net income for 2016 be affected by the intercompany sale?
a Consolidated net assets will decrease, and consolidated net income will increase.
b Neither consolidated net assets nor consolidated net income will be affected.
c Consolidated net assets will not be affected, but consolidated net income will increase.
d Consolidated net assets will increase, and consolidated net income will decrease.