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 2018 consolidated net income?

Question

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 2018 consolidated net income?​

Quizplus · Accepted Answer

When the land is sold to an outside party, the entire gain from the intercompany sale is realized on a consolidated basis, eliminating any temporary effects the intercompany sale had on consolidated net income. Thus, the consolidated net income is the same as it would have been if the intercompany sale had not occurred.