Question

Justings co. owned 80% of evana corp. during 2018, justings sold to evana land with a book value of $48,000. the selling price was $70,000. for purposes of the december 31, 2018 consolidated financial statements, at what amount should the land be reported?

Answer 1

For consolidated financial statements, intercompany sales must be eliminated. The land sold by Justings Co. to Evana Corp. should be reported at its book value of $48,000, eliminating the unrealized profit from the intra-group transaction.

Step-by-step explanation:

For the purposes of the consolidated financial statements of Justings Co. and its subsidiary, Evana Corp., intercompany transactions like the sale of the land must be eliminated. This is because the transaction is not with an external third party. Therefore, the land in question should be reported at its book value, not the selling price, to avoid inflating the assets of the consolidated entity.

Since the book value was $48,000, the land should be reported at this amount. This eliminates the unrealized profit of $22,000 ($70,000 selling price - $48,000 book value) that Justings Co. would have recognized from selling the land to a part of itself (Evana Corp.).

Answer 2

The land should be reported as sold for $70,000. Even though the land is only valued for $48,000 it was still sold for the amount of $70,000. The amount of money paid is much different than the accessed amount. When reporting the transaction it should always be put as the actual sell price, as this will help with future transactions on this land, and all applicable taxes can be paid properly. It is the same thing as buying a vehicle. When purchasing a new car you pay taxes on the amount that the car was bought for, not the Book Value of the vehicle.