9. A parent company sells land to its wholly-owned subsidiary in a prior year, reporting a gain of $20,000. In the current year, the subsidiary sells the land to an outside developer and reports a gain of $50,000. In the consolidation working paper at the end of the current year, the elimination of this transaction will result in: Select one: a. A $70,000 decrease in land b. A $20,000 decrease in beginning retained earnings c. A $20,000 increase in gain on sale of land d. A $50,000 increase in investment in subsidiary

9. A parent company sells land to its wholly-owned subsidiary in a prior year, reporting a gain of $20,000. In the current year, the subsidiary sells the land to an outside developer and reports a gain of $50,000. In the consolidation working paper at the end of the current year, the elimination of this transaction will result in: Select one: a. A $70,000 decrease in land b. A $20,000 decrease in beginning retained earnings c. A $20,000 increase in gain on sale of land d. A $50,000 increase in investment in subsidiary

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

9. A parent company sells land to its wholly-owned subsidiary in a prior year, reporting a gain of $20,000. In the
current year, the subsidiary sells the land to an outside developer and reports a gain of $50,000. In the consolidation
working paper at the end of the current year, the elimination of this transaction will result in: Select one: a. A $70,000
decrease in land b. A $20,000 decrease in beginning retained earnings c. A $20,000 increase in gain on sale of land d.
A $50,000 increase in investment in subsidiary

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