Question

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a non affiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:

Subsidiary Level of Ownership 2008 Net IncomeS3 80% $100,000S2 70% $70,000S1 90% $95,000Parent reported income from its separate operations of $200,000 for 20X8.10-3. Based on the preceding information, at what amount should the land be reported in the consolidated balance sheet as of December 31, 20X8?A. $145,000B. $220,000C. $197,000D. $160,000

Answer 1

$160,000

Step-by-step explanation:

On February 15, 20X8, S3 Corporation purchased the land from a non affiliate for $160,000.

That was the last operation involving a third party.

The rest of the operation should not recognize any income or loss.

If not, a company can create artificial gains and losses by selling the asset at diferent prices.

It will sale higher on one company to avoid a net loss

and then sale cheaper on another to decrease the taxable income.

That's why it will be "lock" at 160,00 until an operation is made with a non-affiliate company