An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset.Which statement is true for the year following the sale?

Question

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When book value exceeds the transfer price of a depreciable asset, it implies that a downstream transfer has taken place. In this case, the selling company (the subsidiary) has transferred the asset with a price lower than its book value to the buying company (the parent). As a result, the subsidiary has suffered a loss, which must be recognized in the consolidated financial statements. To do so, a worksheet entry is made by debiting the Investment in Subsidiary account and crediting the Noncontrolling Interest account. However, this loss also affects the parent's equity, leading to a reduction in its retained earnings. Therefore, a second worksheet entry must be made by crediting retained earnings for an upstream transfer. The credit to retained earnings reduces the parent's equity by the amount of the loss incurred by the subsidiary.

An Intercompany Sale Took Place Whereby the Book Value Exceeded