Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,20X5.This purchase followed a series of transactions between Patch-controlled subsidiaries.On January 23,20X5,Sub3 Corporation purchased the land from a nonaffiliate for $240,000.It sold the land to Sub2 Company for $220,000 on July 15,20X5,and Sub2 sold the land to Sub1 for $305,000 on September 5,20X5.Patch has control of the following companies:
Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,what amount of gain or loss on the sale of land should be reported in the consolidated income statement for 20X5?
A)$0
B)$20,000 loss
C)$110,000 gain
D)$130,000 gain

Question

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,20X5.This purchase followed a series of transactions between Patch-controlled subsidiaries.On January 23,20X5,Sub3 Corporation purchased the land from a nonaffiliate for $240,000.It sold the land to Sub2 Company for $220,000 on July 15,20X5,and Sub2 sold the land to Sub1 for $305,000 on September 5,20X5.Patch has control of the following companies:
  Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,what amount of gain or loss on the sale of land should be reported in the consolidated income statement for 20X5?
A)$0 
B)$20,000 loss 
C)$110,000 gain 
D)$130,000 gain

Quizplus · Accepted Answer

The correct answer is $0 because in a consolidated income statement, intercompany transactions, including sales of assets between the parent company and its subsidiaries, are eliminated. This means any gain or loss from such sales is not recognized in the consolidated financial statements.

Patch Corporation Purchased Land from Sub1 Corporation for $350,000 on December