Question

Parent sold land to its subsidiary resulting in a gain in 2016, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2019. Which of the following statements is true? a) A gain will be recognized in the consolidated income statement in 2019.

b) The subsidiary will recognize a gain in 2016.
c) No gain will be recognized in the 2019 consolidated income statement.
d) Only the parent company will recognize a gain in 2019.

Answer 1

A gain will be recognized in the consolidated income statement in 2019.

Step-by-step explanation:

In this scenario a company sells a land to its subsidiary in 2016, the subsidiary in turn sells the land to a third party for a gain in 2019. The gain will be recognised in the consolidated income statement of 2019 when the subsidiary sold the land to the third party.

Consolidated income statements are a presentation of the incomes and losses of a parent company and its subsidiaries within a given period. The groups are recognised as one economic entity.