In 20X1, a parent company sold a tract of land to its wholly owned subsidiary for $100,000, resulting in a $30,000 loss. The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4. At the end of 20X4, what consolidating journal entry should be made with respect to the loss associated with the sale of land?

A) $30,000\begin{array} { | l | l | } \hline \text { DR Loss on the sale of land } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array}$
B) $30,000\begin{array} { | l | l | } \hline \text { DR Land } & 30,000 \\\hline \text { CR Loss on the sale of land } & 30,000 \\\hline\end{array}$
C) $30,000\begin{array} { | l | l | } \hline \text { DR Retained earnings } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array}$
D) $30,000\begin{array} { | l | l | } \hline \text { DR Land } & 30,000 \\\hline \text { CR Retained earnings } & 30,000 \\\hline\end{array}$

Question

In 20X1, a parent company sold a tract of land to its wholly owned subsidiary for $100,000, resulting in a $30,000 loss. The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4. At the end of 20X4, what consolidating journal entry should be made with respect to the loss associated with the sale of land?

A)

30,000\begin{array} { | l | l | } \hline \text { DR Loss on the sale of land } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array}

B)

30,000\begin{array} { | l | l | } \hline \text { DR Land } & 30,000 \\\hline \text { CR Loss on the sale of land } & 30,000 \\\hline\end{array}

C)

30,000\begin{array} { | l | l | } \hline \text { DR Retained earnings } & 30,000 \\\hline \text { CR Land } & 30,000 \\\hline\end{array}

D)

30,000\begin{array} { | l | l | } \hline \text { DR Land } & 30,000 \\\hline \text { CR Retained earnings } & 30,000 \\\hline\end{array}

varsha jaitley · Accepted Answer

Final Answer : C, Explanation :  Since the subsidiary still owns the land at the end of 20X4, no gain or loss should be recognized yet. Therefore, the initial loss of $30,000 should be deferred and eliminated in consolidation. The consolidating journal entry to eliminate the deferred loss is to debit retained earnings and credit the investment in subsidiary account. The correct entry is shown in choice C.

Definitions

Learning Objectives

Learning Objectives

Related questions