Parent Corporation purchased land from S1 Corporation for $220,000 on December 2
ID: 2520031 • Letter: P
Question
Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Subsidiary Level of Ownership 2008 Net Income
S3 80% $100,000
S2 70% $70,000
S1 90% $95,000
Parent reported income from its separate operations of $200,000 for 20X8.
10-3. Based on the preceding information, at what amount should the land be reported in the consolidated balance sheet as of December 31, 20X8?
A. $145,000
B. $220,000
C. $197,000
D. $160,000
Explanation / Answer
Answer : D. $160,000
Explanation : During consolidated all inter company gains or losses are eliminated from consolidated net income. Thus in consolidation , effect of intercompany transactions from financial statement are removed as if those tranactions never happened.
Therefore the consolidated balance sheet reports the land at its orginal value of $160,000 (ie Cost incurred by S3 Corporation to purchase the land from an outsider)
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