In preparing the consolidated financial statements for the second year after the sale to Singh, Ross made the following journal entry: DR Accumulated depreciation-machine 17 , 500 CR Depreciation expense-machine 17 , 500 \begin{array} { | c | c | } \hline ext { DR Accumulated depreciation-machine } & 17,500 \\hline ext { CR Depreciation expense-machine } & 17,500 \\hline\end{array} DR Accumulated depreciation-machine CR Depreciation expense-machine 17 , 500 17 , 500 What other adjustment must be made in preparing the consolidated financial statements?A) DR Opening retained earnings 37 , 500 CR Machine 87 , 500 \begin{array} { | c | c | } \hline ext { DR Opening retained earnings } & 37,500 \\hline ext { CR Machine } & 87,500 \\hline\end{array} DR Opening retained earnings CR Machine 37 , 500 87 , 500 B) DR Opening retained earnings 70 , 000 DR Accumulated depreciation-machine 17 , 500 CR Machine 87 , 500 \begin{array} { | l | l | } \hline ext { DR Opening retained earnings } & 70,000 \\hline ext { DR Accumulated depreciation-machine } & 17,500 \\hline ext { CR Machine } & 87,500 \\hline\end{array} DR Opening retained earnings DR Accumulated depreciation-machine CR Machine 70 , 000 17 , 500 87 , 500 C) DR Accumulated depreciation-machine 37 , 500 CR Machine 87 , 500 \begin{array} { | l | l | } \hline ext { DR Accumulated depreciation-machine } & 37,500 \\hline ext { CR Machine } & 87,500 \\hline\end{array} DR Accumulated depreciation-machine CR Machine 37 , 500 87 , 500 D) DR Closing retained earnings 70 , 000 DR Depreciation expense 17 , 500 CR Machine 87 , 500 \begin{array} { | l | l | } \hline ext { DR Closing retained earnings } & 70,000 \\hline ext { DR Depreciation expense } & 17,500 \\hline ext { CR Machine } & 87,500 \\hline\end{array} DR Closing retained earnings DR Depreciation expense CR Machine 70 , 000 17 , 500 87 , 500

Question

In preparing the consolidated financial statements for the second year after the sale to Singh, Ross made the following journal entry:    DR Accumulated depreciation-machine  17 , 500  CR Depreciation expense-machine  17 , 500 \begin{array} { | c | c | } \hline 	ext { DR Accumulated depreciation-machine }  &  17,500 \\hline 	ext { CR Depreciation expense-machine }  &  17,500 \\hline\end{array}  DR Accumulated depreciation-machine   CR Depreciation expense-machine  ​ 17 , 500 17 , 500 ​ ​   What other adjustment must be made in preparing the consolidated financial statements?A)     DR Opening retained earnings  37 , 500  CR Machine  87 , 500 \begin{array} { | c | c | } \hline 	ext { DR Opening retained earnings }  &  37,500 \\hline 	ext { CR Machine }  &  87,500 \\hline\end{array}  DR Opening retained earnings   CR Machine  ​ 37 , 500 87 , 500 ​ ​ B)     DR Opening retained earnings  70 , 000  DR Accumulated depreciation-machine  17 , 500  CR Machine  87 , 500 \begin{array} { | l | l | } \hline 	ext { DR Opening retained earnings }  &  70,000 \\hline 	ext { DR Accumulated depreciation-machine }  &  17,500 \\hline 	ext { CR Machine }  &  87,500 \\hline\end{array}  DR Opening retained earnings   DR Accumulated depreciation-machine   CR Machine  ​ 70 , 000 17 , 500 87 , 500 ​ ​ C)     DR Accumulated depreciation-machine  37 , 500  CR Machine  87 , 500 \begin{array} { | l | l | } \hline 	ext { DR Accumulated depreciation-machine }  &  37,500 \\hline 	ext { CR Machine }  &  87,500 \\hline\end{array}  DR Accumulated depreciation-machine   CR Machine  ​ 37 , 500 87 , 500 ​ ​ D)     DR Closing retained earnings  70 , 000  DR Depreciation expense  17 , 500  CR Machine  87 , 500 \begin{array} { | l | l | } \hline 	ext { DR Closing retained earnings }  &  70,000 \\hline 	ext { DR Depreciation expense }  &  17,500 \\hline 	ext { CR Machine }  &  87,500 \\hline\end{array}  DR Closing retained earnings   DR Depreciation expense   CR Machine  ​ 70 , 000 17 , 500 87 , 500 ​ ​

Lasirton Bryant · Accepted Answer

Final Answer : B, Explanation :  Since Ross sold the machine to Singh, it needs to eliminate the intercompany gain on the sale in the consolidated financial statements. This can be accomplished by reducing the depreciation expense on the machine by the amount of the intercompany gain. Therefore, option B, which reduces the depreciation expense by $17,500, is the correct answer. Options A, C, and D are incorrect as they do not address the intercompany gain and do not result in consolidated financial statements that are in accordance with the accounting principles.

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