A few years ago, Locke Ltd. purchased a machine from its wholly owned subsidiary, Dubois Ltd., for $90,000. Locke has just sold the machine to an unrelated party for a $15,000 gain. At the time of the sale, there was still an unrealized gain of $50,000 from the purchase from Dubois. With this sale of the asset to the unrelated party, what is the amount of gain that should be recognized on Locke's consolidated financial statements?
A)$15,000
B)$50,000
C)$55,000
D)$65,000

Question

Quizplus · Accepted Answer

The correct amount of gain to be recognized on the consolidated financial statements is $65,000. This includes the $15,000 gain from the sale to the unrelated party and the $50,000 unrealized gain from the initial purchase from Dubois Ltd., which becomes realized upon sale to the unrelated party.

A Few Years Ago, Locke Ltd