On January 1, 2016 Bullock, Inc.sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain.The land is sold by Humphrey to an outside party in 2018.What is the effect of the intercompany sale of land on 2016 consolidated net income?

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Quizplus · Accepted Answer

In consolidated financial statements, intercompany transactions are eliminated to avoid double counting of revenues, expenses, and profits. Since the sale of land from Bullock, Inc. to its subsidiary Humphrey Corporation is an intercompany transaction, the $20,000 gain recognized on the sale is eliminated in consolidation. Therefore, the consolidated net income will be the same as it would have been had the sale not occurred.