At the beginning of 2018, a parent sells a building with a book value of $1,000,000 to its subsidiary for $1,500,000. The building has a 10-year remaining life at the time of sale. Straight-line depreciation is used, with no residual value. At the beginning of 2021, the subsidiary sells the building to an outside company for $800,000. On the 2021 consolidation working paper, the unconfirmed intercompany gain on the building sale is recognized in the amount of:

Question

Quizplus · Accepted Answer

Total intercompany gain is $500,000, realized at a rate of $50,000/year. The building is sold to an outside company after three years, so the unconfirmed gain recognized in 2021 is $500,000 - ($50,000 x 3) = $350,000.

At the Beginning of 2018, a Parent Sells a Building