Question

1. A parent sells land costing $40,000 to a subsidiary in 2018 for $55,000. The subsidiary sells the land in 2020 to a third party for $65,000. On the consolidated income statement for 2020, the gain on sale of land is: A. $15,000 B. $0 C. $25,000 D. $10,000

Answer 1

Answer:C. $25,000.

Explanation:A consolidated income statement is an income statement that contains the revenue, the expenditures, and income of a parent company and its subsidiaries. A consolidated income statements gives a complete income statement of the entire company which includes the parent company and its subsidiaries.

The cost of the land by the parent company =$40,000

The land was sold in 2020 by the Subsidiary=$65,000

The gain on the sale of the land will be Equal to

$65,000-$40,000

=$25,000.

AS STATED EARLIER, THE consolidated INCOME STATEMENTS VIEWS THE ENTITY AS A WHOLE AND PUTS INTO ACCOUNT THE ENTIRE TRANSACTION OF THE BUSINESS VENTURE.

Answer 2

d. $10000

Step-by-step explanation:

the fair market value of the land in 2020 is $65000 therefore the subsidiary bought the land at a fair market value of $55000 therefore the subsidiary made a profit of $10000 so that is the amount that the subsidiary gained from making the sale and it will be recorded on the consolidated income statement as a gain on sale of $10000.