Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2020, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2020 and 2021, respectively. Leo uses the equity method to account for its investment.Compute the gain or loss on the intra-entity transfer of land that should be reported on the books of Leo prior to consolidation.
A) $15,000 loss.
B) $15,000 gain.
C) $50,000 loss.
D) $50,000 gain.
E) $65,000 gain.

Question

Quizplus · Accepted Answer

The gain on the intra-entity transfer of land is calculated as the difference between the selling price and the original cost to Leo. The land was sold for $75,000 and originally cost $60,000, resulting in a $15,000 gain.

Stiller Company, an 80% Owned Subsidiary of Leo Company, Purchased