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Parent sold land to its subsidiary resulting in a gain in 2019, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2022. Which of the following statements is true?
A) A gain will be recognized in the consolidated income statement in 2019.
B) A gain will be recognized in the consolidated income statement in 2022.
C) No gain will be recognized in the 2022 consolidated income statement.
D) Only the parent company will recognize a gain in 2022.
E) The subsidiary will recognize a gain in 2019.
Gain Recognition
The process of recording increases in asset value, typically when assets are sold for more than their book value.
Consolidated Income Statement
A financial statement that combines the income, expenses, and profits of a parent company and its subsidiaries to present the overall performance.
Subsidiary Sold Land
An event where a company owned by another company sells a piece of real estate.
- Attain knowledge regarding the consolidation approach, including the removal of internal transactions.
- Understand the consequences of intra-entity transfers of depreciable assets and land on consolidated financial statements.
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Learning Objectives
- Attain knowledge regarding the consolidation approach, including the removal of internal transactions.
- Understand the consequences of intra-entity transfers of depreciable assets and land on consolidated financial statements.
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