Zeus Ltd Owns 100% of the Issued Capital of Ares

Multiple Choice

Zeus Ltd owns 100% of the issued capital of Ares Ltd.On 1 July 2015,Zeus Ltd purchased an item of equipment from Ares Ltd for $800 000.Ares had owned the equipment for 2 years.It originally cost $890 000 and the accumulated depreciation was $178 000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2015 is estimated to be 8 years.Zeus Ltd expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30%. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2016?

A)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Dr } & \text { Equipment } & 90000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 178000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Income tax expense } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\\hline\end{array}$$
B)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Dr } & \text { Equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 176000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\\hline\end{array}$$
C)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 17500 & \\\hline \mathrm { Cr } & \text { Purchases } & & 17500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5250 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5250 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 49000 & \\\hline \mathrm { Cr } & \text { Closing retained earnings } & & 49000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Purchases } & 29400 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 29400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 8820 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 8820 \\\hline\end{array}$$
D)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 26400 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Depreciation expense } & 12500 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation } & & 12500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3750 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3750 \\\hline\end{array}$$