On June 30, 2012, Parent Company sold some land to its subsidiary for $240,000. The land had cost Parent Company $120,000 when it was acquired three years previously. The transaction was subject to income tax at a rate of 20%. On June 30, 2014, the subsidiary sold the land to an outside party for $275,000. This transaction was also subject to income tax at a 20% rate. Parent Company owns 75% of the outstanding shares of its subsidiary and accounts for its investment using the cost method. What amount will appear on the "gain on sale of land" line in Parent' Company's consolidated income statement for the year ended December 31, 2012?

Question

Quizplus · Accepted Answer

In a consolidated income statement, intercompany transactions are eliminated. The gain from the sale of land from Parent to Subsidiary is not recognized in the consolidated financials until the land is sold to an outside party. Therefore, the gain on sale of land in 2012 is $0.

On June 30, 2012, Parent Company Sold Some Land to Its