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 Parker's reported gain or loss on its internal accounting records prior to consolidation relating to the land for 2022.
A) $12,000 gain.
B) $5,000 loss.
C) $12,000 loss.
D) $7,000 gain.
E) $7,000 loss.

Question

Quizplus · Accepted Answer

Parker sold the land for $92,000, which was purchased from Stark for $80,000, resulting in a gain of $12,000 ($92,000 - $80,000) on its internal accounting records prior to consolidation.

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