Final answer:
In a consolidation worksheet, debit to subsidiary's retained earnings is necessary for prior year intercompany transfer of land when it resulted in a gain reported in retained earnings, to eliminate the gain from consolidated financials.
Step-by-step explanation:
When doing a consolidation worksheet, the elimination entry for a prior year intercompany transfer of land includes a Debit to the subsidiary's retained earnings when the transfer resulted in a gain that was reported in the subsidiary's retained earnings in a prior year. This is necessary to eliminate any artificial gains resulting from transactions within the same economic entity.
To handle this situation, the elimination entry would reverse the gain recognized by the subsidiary by debiting its retained earnings and crediting the land account to reflect its original cost in the consolidated financial statements. Retained earnings are adjusted since the gain from the intercompany transaction should not be realized by the consolidated entity, as the land has not been sold to an outside party.