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 relating to the land that will be reported in consolidated net income for 2022.
A) $5,000 loss.
B) $7,000 gain.
C) $12,000 gain.
D) $7,000 loss.
E) $12,000 loss.

Question

Quizplus · Accepted Answer

The gain on the sale of land in 2022 is $7,000, calculated as the difference between the selling price ($92,000) and the original cost to Stark ($85,000).

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