In 20X1, a parent company sold a tract of land to its wholly owned subsidiary for $100,000, resulting in a $30,000 loss. The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4. At the end of 20X4, what consolidating journal entry should be made with respect to the loss associated with the sale of land?
A) $$\begin{array} { | l | l | }
\hline \text { DR Loss on the sale of land } & 30,000 \
\hline \text { CR Land } & 30,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | l | }
\hline \text { DR Land } & 30,000 \
\hline \text { CR Loss on the sale of land } & 30,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | l | }
\hline \text { DR Retained earnings } & 30,000 \
\hline \text { CR Land } & 30,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | l | }
\hline \text { DR Land } & 30,000 \
\hline \text { CR Retained earnings } & 30,000 \
\hline
\end{array}$$

Question

In 20X1, a parent company sold a tract of land to its wholly owned subsidiary for $100,000, resulting in a $30,000 loss. The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4. At the end of 20X4, what consolidating journal entry should be made with respect to the loss associated with the sale of land?
A) $$\begin{array} { | l | l | } 
\hline \text { DR Loss on the sale of land } & 30,000 \
\hline \text { CR Land } & 30,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | l | } 
\hline \text { DR Land } & 30,000 \
\hline \text { CR Loss on the sale of land } & 30,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | l | } 
\hline \text { DR Retained earnings } & 30,000 \
\hline \text { CR Land } & 30,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | l | } 
\hline \text { DR Land } & 30,000 \
\hline \text { CR Retained earnings } & 30,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Since the subsidiary still owns the land at the end of 20X4, no gain or loss should be recognized yet. Therefore, the initial loss of $30,000 should be deferred and eliminated in consolidation. The consolidating journal entry to eliminate the deferred loss is to debit retained earnings and credit the investment in subsidiary account. The correct entry is shown in choice C.

In 20X1, a Parent Company Sold a Tract of Land DR Loss on the sale of land 30,000 CR Land 30,000\begin{array} { | l | l | } \hline \text { DR Loss on the sale of land } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array} DR Loss on the sale of land CR Land ​30,00030,000​​

In 20X1, a Parent Company Sold a Tract of Land $\begin{array} { | l | l | } \hline \text { DR Loss on the sale of land } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array}$