On June 30, 2018, Parent Company sold some land to its subsidiary for $240,000. The land had cost Parent Company $120,000 when it was acquired three years previously. The transaction was subject to income tax at a rate of 20%. On June 30, 2020, the subsidiary sold the land to an outside party for $275,000. This transaction was also subject to income tax at a 20% rate. Parent Company owns 75% of the outstanding shares of its subsidiary and accounts for its investment using the cost method. What effect will the adjustment for the realization of the intercompany gain (in the preparation of the consolidated income statement) have on the non-controlling interest in income for 2020?

Question

Quizplus · Accepted Answer

The intercompany gain is eliminated in consolidation, and since the Parent Company owns 75% of the subsidiary, the non-controlling interest (25%) is not affected by the realization of the intercompany gain.

On June 30, 2018, Parent Company Sold Some Land to Its