Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012.
-Compute the gain or loss relating to the land that will be reported in consolidated net income for 2012.
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 2012 is $7,000, calculated as the sale price of $92,000 minus the original cost of $85,000. The intercompany profit of $5,000 from the 2010 sale is eliminated in consolidation, resulting in a net gain of $7,000.

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