A subsidiary sold its parent some land at a profit of $10,000 in 2019. The parent still holds the land. On a working paper prepared to consolidate the accounts of the parent and its subsidiary in 2021, the eliminating entry connected with this land includes a $10,000 debit to:

Question

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The profit from the intercompany sale of land is unrealized as long as the land is still held by the parent. Therefore, the profit must be eliminated from the consolidated financial statements by debiting beginning retained earnings to reverse the effect of the profit recognized in prior years.

A Subsidiary Sold Its Parent Some Land at a Profit