Asked by
Cheyenne Tindall
on Oct 16, 2024
Verified
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 amount will appear on the "Gain on sale of land" line in Parent Company's consolidated income statement for the year ended December 31, 2018?
A) $0
B) $96,000
C) $120,000
D) $240,000
Gain on Sale
The profit realized from the sale of an asset when the selling price exceeds the asset's book value at the time of sale.
Consolidated Income Statement
A income statement that combines the financial performance of all subsidiaries with the parent company, eliminating intercompany transactions.
Income Tax Rate
The proportion of income that is taken from a person or business in the form of taxes.
- Determine and assess unrealized profits from intercompany transactions and their impact on tax liabilities.
Verified Answer
MP
Learning Objectives
- Determine and assess unrealized profits from intercompany transactions and their impact on tax liabilities.