Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the equity method to account for its investment.
On a consolidation worksheet, having used the equity method, what adjustment would be made for 2013 regarding the land transfer?
A) Debit retained earnings for $15,000.
B) Credit retained earnings for $15,000.
C) Debit retained earnings for $50,000.
D) Credit retained earnings for $50,000.
E) Debit investment in Stiller for $15,000.

Question

Quizplus · Accepted Answer

Debit the Investment account for the Gain of $15,000, with any realized gain on the transfer deferred until the parcel is sold outside the entity in the future

Stiller Company, an 80% Owned Subsidiary of Leo Company, Purchased