Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries:

1. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000.
2. S3 sold the land to S2 Company for $145,000 on October 19, 20X8.
3. S2 sold the land to S1 for $197,000 on November 27, 20X8.

Parent Corporation has control of the following companies:

| Subsidiary | Level of Ownership | 2008 Net Income |
|------------|--------------------|-----------------|
| S3 | 80 percent | $100,000 |
| S2 | 70 percent | $70,000 |
| S1 | 90 percent | $95,000 |

Parent Corporation reported income from its separate operations of $200,000 for 20X8.

Based on the preceding information, what amount of gain or loss on sale of land should be reported in the consolidated income statement for 20X8?

The land will be reported at $160,000 in the consolidated balance sheet as of December 31, 20X8, but there will be no amount of gain or loss on sale of land

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JohnCothran JohnCothran · Answer 2 · 2024-05-19T13:38:36-04:00

Final answer:

The gain on the sale of land to be reported in the consolidated income statement for 20X8 is $60,000.

Explanation:

To determine the amount of gain or loss on the sale of land that should be reported in the consolidated income statement for 20X8, we need to track the transactions between the parent corporation and its controlled subsidiaries. Let's break it down step by step:

S3 Corporation purchased the land from a nonaffiliate for $160,000 on February 15, 20X8.
S3 sold the land to S2 Company for $145,000 on October 19, 20X8.
S2 sold the land to S1 for $197,000 on November 27, 20X8.
Finally, Parent Corporation purchased the land from S1 for $220,000 on December 26, 20X8.

To calculate the gain or loss, we need to subtract the original purchase price ($160,000) from the final selling price ($220,000), which gives us a gain of $60,000. Therefore, a gain of $60,000 should be reported in the consolidated income statement for 20X8.

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