Several years ago, P Company bought land from S Company, its 80% owned subsidiary, at a gain of $50,000 to S Company. The land is still owned by P Company. The consolidated working papers for this year will require:
A) no entry because the gain happened prior to this year.
B) a credit to land for $50,000.
C) a debit to P's retained earnings for $50,000.
D) a debit to Noncontrolling interest for $50,000.

Question

Quizplus · Accepted Answer

A credit to land for $50,000 is required in the consolidated working papers to eliminate the gain recognized on the intercompany transaction. This adjustment ensures that the consolidated financial statements reflect the historical cost of the land to the consolidated entity, not the inflated price paid by P Company to S Company.

Several Years Ago, P Company Bought Land from S Company