Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2020, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2020, 2021, and 2022, respectively. Parker sold the land purchased from Stark for $92,000 in 2022. Both companies use the equity method of accounting.Compute the gain or loss reported on Stark's books prior to consolidation from the intra-entity transfer of land in 2020.
A) $80,000 gain.
B) $80,000 loss.
C) $5,000 gain.
D) $5,000 loss.
E) $85,000 loss.

Question

Quizplus · Accepted Answer

Stark sold the land to Parker for $80,000, but the land originally cost Stark $85,000, resulting in a $5,000 loss on Stark's books prior to consolidation.

Stark Company, a 90% Owned Subsidiary of Parker, Inc