Compute the gain or loss on the intra-entity transfer of land that should be reported on the books of Stiller prior to consolidation.
A) $15,000 loss.
B) $15,000 gain.
C) $50,000 loss.
D) $50,000 gain.
E) $65,000 gain.

Question

Quizplus · Accepted Answer

We know that the land was originally purchased for $300,000, and the carrying amount is now $250,000. When the land was transferred from Stiller to Perkins, it was transferred at its carrying amount of $250,000. However, the fair value of the land at the time of the transfer was $365,000. Thus, the gain on the transfer would be the difference between the fair value of the land ($365,000) and Stiller's carrying amount ($250,000), which is $115,000. This gain is recognized on Perkins' books, which means that Stiller would need to remove $115,000 from the carrying amount of the land on its books. Therefore, the answer is a gain of $15,000, which is the difference between the original cost of the land ($300,000) and the adjusted carrying amount ($285,000).

Compute the Gain or Loss on the Intra-Entity Transfer of Land