Use the following information for questions 1, 2, 3, 4 and 5: Sally Company (a 70%-owned subsidiary) owned a machine with an original cost of $210,000. It had been depreciated in the last 2 years on the straight-line method with 7 years of life and no salvage value. On January 1, 2015, Sally sold this machine to Patty Corporation (the parent) for a price of $170,000 in cash. Patty uses the machine in its operation.

1. How are Pattys 2015 equity in net income of Sally and 2015 noncontrolling interest in net income affected by the intercompany sale of machine?

Equity in net income Noncontrolling interest in net income

a) $16,000 decrease $0

b) $4,000 increase $0

c) $11,200 decrease $4,800 decrease

d) $2,800 increase $1,200 increase

2. The working paper entries for the year ended December 31, 2015 would include

A. A credit of $20,000 to Intercompany Gain on Sale of Machine

B. A credit of $4,000 to Depreciation Expense

C. A credit of $20,000 to Retained Earnings

D. A debit of $54,000 to Machine

3. The working paper entries for the year ended December 31, 2016 would include

A. A debit of $12,000 to Accumulated Depreciation

B. A debit of $16,000 to Retained Earnings

C. A credit for $12,000 toInvestment in Sally

D. A debit of $16,000 to Investment in Sally

4. As of December 31, 2016, the unconfirmed intercompany gain was

A. $8,000

B. $12,000

C. $16,000

D. $20,000

5. The working paper entries for the year ended December 31, 2016 would

A. Increase accumulated depreciated by $52,000

B. Decrease machine by $40,000

C. Decrease depreciation expense by $8,000

D. Decrease Intercompany Gain on Sale of Machine by $20,000