Question

Parent sold Sub land in a prior year for a gain of $40,000. The land is still held by Sub. Parent owns 80% of Sub. The elimination entry necessary for this intercompany transaction on the current year's worksheet includes____________-.

Answer 1

The elimination entry necessary for this intercompany transaction on the current year's worksheet is to debit the Parent's Investment in Subsidiary account and credit the Subsidiary's Land account for the amount of the gain, in this case $40,000.

Step-by-step explanation:

The elimination entry necessary for this intercompany transaction on the current year's worksheet would be to eliminate the gain on the land sale made by the parent from the books of the subsidiary. Since the land is still held by the subsidiary, the gain from the land sale needs to be eliminated.

The entry would be to debit the Parent's Investment in Subsidiary account and credit the Subsidiary's Land account for the amount of the gain, in this case $40,000. This will effectively remove the gain from the parent's books and transfer it back to the subsidiary's books since the land is still owned by the subsidiary.

The elimination entry would look like this:

Parent's Investment in Subsidiary - Debit $40,000
Subsidiary's Land - Credit $40,000