Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,20X8.This purchase followed a series of transactions between P-controlled subsidiaries.On February 15,20X8,S3 Corporation purchased the land from a nonaffiliate for $160,000.It sold the land to S2 Company for $145,000 on October 19,20X8,and S2 sold the land to S1 for $197,000 on November 27,20X8.Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8?
A)$369,400
B)$405,000
C)$465,000
D)$60,000

Question

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,20X8.This purchase followed a series of transactions between P-controlled subsidiaries.On February 15,20X8,S3 Corporation purchased the land from a nonaffiliate for $160,000.It sold the land to S2 Company for $145,000 on October 19,20X8,and S2 sold the land to S1 for $197,000 on November 27,20X8.Parent has control of the following companies:
  Parent reported income from its separate operations of $200,000 for 20X8.
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8?
A)$369,400 
B)$405,000 
C)$465,000 
D)$60,000

Quizplus · Accepted Answer

The gain on the sale of the land to S2 Company by S3 Corporation is $145,000 - $160,000 = -$15,000, which is eliminated in consolidation. The gain on the sale of the land to S1 Corporation by S2 Company is $197,000 - $145,000 = $52,000, which is also eliminated in consolidation. Therefore, the cost of the land to Parent Corporation is $220,000, which is the only relevant figure for consolidation purposes. Since Parent reported income from its separate operations of $200,000 for 20X8, the consolidated income for the controlling shareholders is $200,000 + $220,000 = $420,000. However, the affiliates' share of the consolidated income is $420,000 x 10% = $42,000, which should be deducted from the consolidated income to arrive at the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8, which is $420,000 - $42,600 = $369,400. Therefore, the correct answer is A) $369,400.

Parent Corporation Purchased Land from S1 Corporation for $220,000 on December