D is corrent. In the consolidation process, the equipment must be revalued to Dove’s carrying amount (Dove’s original cost less accumulated depreciation), or $125,000 ($275,000 - $150,000 A/D). This amount also equals Vulture’s original cost ($200,000) less 100% of Dove’s recorded gain of $75,000 ($200,000 sales price - $125,000 cv). Revaluation thereby eliminates the intercompany gain on the transaction.
A is incorrect. In the consolidation process, the equipment must be revalued to Dove’s carrying amount (Dove’s original cost less accumulated depreciation), or $125,000 ($275,000 - $150,000 A/D). This amount also equals Vulture’s original cost ($200,000) less 100% of Dove’s recorded gain of $75,000 ($200,000 sales price - $125,000 cv). Revaluation thereby eliminates the intercompany gain on the transaction.
B is incorrect because Vulture’s original cost includes an unrealized intercompany gain that must be eliminated.
C is incorrect because revaluing the equipment at Dove’s original cost would not take into consideration the depreciation already recorded by Dove.
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