Question

100% Ownership Land Transfer (Non-Depreciable) • On 3/31/X5, Parker Inc. sold land costing $40,000 to its 100% owned subsidiary, Stubben Inc., for $100,000.

• In this example, we’ll do consolidation worksheet entries without adjusting the equity method accounts.

• This is the modified equity method.

• This is meant to be a conceptual exercise only. (We will switch to the fully adjusted equity method next.)

Required:

1. Prepare the consolidation entry(ies) as of 12/31/X5 and 12/31/X6.

2. Prepare the consolidation entry at 12/31/X7, assuming that Stubben sold the land in 20X7 for $120,000.

Answer 1

	Date	Accounts Titles and Explanation	Debit	Credit
			(Figure in $)
1
	31-Dec-15	Gain on Sale of Land	60,000
		Land		60,000
		(To eliminate unrealized gain from the land transfer
		and adjust theland value to the old basis before transfer.)
	31-Dec-16	Investment in Stubben	60,000
		Land		60,000
		(To eliminate unrealized gain from the Investment value
		and adjust the land value to the old basis)
2
	31-Dec-17	Investment in Stubben	60,000
		Gain on Sale of Land		60,000
		(To remove intra?entity gain from the original transfer so
		that total gain from sale could be recognized in the current
		period when land is sold to an outside party)