In: Accounting
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 |
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