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.On a consolidation worksheet, what adjustment would be made for 2020 regarding the land transfer?
A) Debit gain for $50,000.
B) Credit gain for $50,000.
C) Debit land for $15,000.
D) Credit land for $15,000.
E) Credit gain for $15,000.

Question

Quizplus · Accepted Answer

The land was sold at a $15,000 gain ($75,000 - $60,000). In consolidation, this unrealized gain must be eliminated, so the land account is credited by $15,000 to adjust it back to its original cost.

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