Suppose Ryan acquired land sometime in the past at a cost of $2,000,000. During the current year, it sells the land to Patrick (subsidiary) for $2,500,000. Prior to consolidation, a gain of $500,000 (= $2,500,000 - $2,000,000) appears on Ryan's books, and Patrick's books carry the land at $2,500,000. At the date of consolidation, Patrick still owns the land. On the consolidated balance sheet, what amount will the land be reported at?
Select one:
a. $500,000
b. $2,000,000
c. $2,500,000
d. The land will be eliminated on the consolidated balance sheet
Solution:
As land was sold by parent company to subsidiary company at a profit of $500,000, therefore this profit will be eliminated for the purpose of consolidation as asset is with subsidiary on the balance sheet date. Therefore on the consolidated balance sheet amount at which land to be reported = $2,000,000
Hence option b is correct.
Suppose Ryan acquired land sometime in the past at a cost of $2,000,000. During the current...