Final answer:
The true statement concerning the eliminating entries for intercompany sales of land from a subsidiary to its parent is that they result in a decrease in the consolidated assets. The correct option is B.
Step-by-step explanation:
When dealing with consolidated financial statements, the process of elimination is crucial for ensuring that intercompany transactions do not inflate consolidated figures. In the case of intercompany sales of land from a subsidiary to its parent, specific eliminating entries are required to correctly present the consolidated financial position.
The correct answer to the student's question is: a) Eliminating entries for intercompany sales of land result in a decrease in the consolidated assets. These entries are necessary to remove the effects of the sale from the consolidated statements, as the transaction does not represent an actual change in economic ownership of the asset from an external perspective. When the subsidiary sells the land to the parent, this 'sale' is only within the corporate group and the asset effectively remains within the same economic entity.
To adjust for this, the consolidating adjustments would typically include debiting the asset account to remove the asset from the consolidated balance sheet, and crediting the corresponding investment in the subsidiary account or directly adjusting retained earnings or other equity accounts to reverse any gain or loss recorded on the sale. This process serves to eliminate the 'sale' and ensures that the asset is reported at its original cost to the consolidated entity, thus decreasing consolidated assets and adjusting the equity properly.
This adjustment does not result in an increase in consolidated liabilities, so (b) is incorrect. Although the equity section of the balance sheet is affected, as it may involve reversing a gain or loss on the transaction within equity, it is more precise to say that eliminating entries adjust the consolidated assets rather than generically saying they adjust equity, making (c) less appropriate. Lastly, (d) is incorrect because these entries certainly do have an impact on the consolidated statements; they are essential for presenting an accurate financial position.