Question

Pumpkin Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, Spice Corporation, for $70,000. Pumpkin owns 80 percent of Spice's voting shares. Based on the preceding information, what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X8?

a. Gain on Sale of Land 20,000
Land 20,000

b. Gain on Sale of Land 16,000
Land 16,000

c. Land 16,000
Gain on Sale of Land 16,000

d. Land 20,000
Gain on Sale of Land 20,000

Answer 1

a. Gain on Sale of Land 20,000

Land 20,000

Step-by-step explanation:

The Gain on Sale of land account should be debited by the gain received to remove the effects from the statements as the account had been credited.

The Land account should likewise be credited as the gain had been debited to it. Crediting it would therefore remove the effects of the sale of the land.

Difference = 70,000 - 50,000

= $20,000