Question

In: Accounting

A subsidiary sold its parent some land at a profit of $10,000 in 2019. The parent...

A subsidiary sold its parent some land at a profit of $10,000 in 2019. The parent still holds the land.

On a working paper prepared to consolidate the accounts of the parent and its subsidiary in 2021, the eliminating entry connected with this land includes a $10,000 debit to:

A.

Beginning retained earnings
B.

Gain on sale of land
C.

Investment in subsidiary
D.

No effect—elimination entry is not required

Solutions

Expert Solution

Assume Land was of Value 20000 and the profit on that 10000(as given)

BOOK OF SUBSIDARY

BOOKS OF HOLDING

Entry when subsidiary sold land to holding

Entry when

Bank a/c                                20000

       To Gain on Sale of Land(P&L) 10000

      To Land a/c                                 20000   

Land a/c               30000

      To Bank                      30000

When we will consolidate Land will be at 30000 and in consolidated Profit on loss there will be a debit balance of 10000 which needs to be reversed because this profit is only hypothetical
So the entry in Consolidated accounts would be

Gain on sale of Land          10000
                     To Land                                 10000

Answer : In question it is given that sale was made in 2019 and we are consolidating in year 2021 so thing is Consolidated statement at year end of 2020 has already dealt with the above mentioned entry so the answer is Option D - No Effect

(However iin year 2020 above adjustment would be required then answer would be Option B) Only for REFRENCE

ekkarill92 answered 3 months ago
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