Question

A parent sells land costing $35,000 to a subsidiary in 2014 for $55,000. The subsidiary sells the land in 2016 to a third party for $85,000. On the consolidated income statement for 2016, the GAIN on sale of land is____________.

Answer 1

The gain on sale of land on the consolidated income statement for 2016 is $50,000, which is calculated by subtracting the land's original cost ($35,000) from the final sale price to the third party ($85,000).

Step-by-step explanation:

When calculating the gain on sale of land in a consolidated income statement, we need to eliminate any intra-group transactions. Since the parent sold the land to the subsidiary, that transaction is ignored for consolidation purposes. Therefore, the gain on sale is the difference between the final sale price to the third party and the land's original cost to the parent.

The original cost to the parent was $35,000, and the sale price to the third party was $85,000. The consolidated gain on the sale of land is hence calculated as $85,000 minus $35,000, which equals $50,000.