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In 2011, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000. It had a...

In 2011, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000. It had a book value of $24,000. In the next year (2012), Sidd sold the land for $41,000 to an unaffiliated firm.

The 2011 unrealized gain from the intercompany sale:

a.

should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.
b.

should be recognized in consolidation in 2011 by a working paper entry.
c.

should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000.
d.

should be eliminated from consolidated net income by a working paper entry that credits land for $14,000.

is the answer A?
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Answer #1

Yes the correct answer should be A - should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.

Notes

Unrealized gain would have been calculated based on the inter company transaction that took place. Hence, unrealized gain = Sale price of land - Cost of land = 38000-24000 = $14000.

Please comment in case of any issue and I will be happy to help.

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