Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute the gain or loss relating to the land that will be reported in consolidated net income for 2014.
A) $5,000 loss.
B) $7,000 gain.
C) $12,000 gain.
D) $7,000 loss.
E) $12,000 loss.

Question

Quizplus · Accepted Answer

The Reported Gain of $12,000 is offset by the Deferred Loss on the Original Transfer of $5,000 to have the net effect of a $7,000 Gain in Reported Consolidated Income

Stark Company, a 90% Owned Subsidiary of Parker, Inc