Final answer:
The student's question is answered by calculating the loss incurred by the parent upon selling the building to the subsidiary, and then the gain realized by the subsidiary upon selling the building to an outside party. The overall result from the parent's perspective is a Gain of $125,000 after considering both transactions.
Step-by-step explanation:
The question at hand involves the disposal of a building asset and the calculation of gain or loss on this disposal. The building was originally acquired for $400,000 and had accumulated depreciation of $100,000, which results in a book value of $300,000 at the time of sale to the subsidiary. Since the building was sold for $250,000, we recognize an initial loss of $50,000 ($300,000 book value - $250,000 sale price).
The subsidiary then continues to depreciate the building for the remainder of its estimated life. By the end of 2013, which is three years later, an additional depreciation of $150,000 ($250,000/5 years * 3 years) would have been recorded, leaving a book value of $100,000. The subsequent sale to an outside party for $275,000 results in a gain of $175,000 ($275,000 sale price - $100,000 book value). To answer the student's question, a Gain of $175,000 was realized on the sale to the outside party in 2013. However, considering both transactions, from the parent's perspective, the overall result is a Gain of $125,000 ($175,000 gain on subsidiary's sale - initial $50,000 loss on parent's sale to subsidiary).