Stark Company, a 90% Owned Subsidiary of Parker, Inc

question 14

Multiple Choice

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2020, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2020, 2021, and 2022, respectively. Parker sold the land purchased from Stark for $92,000 in 2022. Both companies use the equity method of accounting.Which of the following will be included in a consolidation entry for 2021?

• A) Debit Retained Earnings for $5,000.
• B) Credit Retained Earnings for $5,000.
• C) Debit Investment in Subsidiary for $5,000.
• D) Credit Investment in Subsidiary for $5,000.
• E) Credit Land for $5,000.

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Definitions:

Present Value

The contemporary valuation of an upcoming sum of money or cash flows over time, factoring in a designated rate of return.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.

Par Value

The stated value of a bond or stock by the issuing entity, which may not mirror its actual value in the market.

Periodic Interest Payments

Regular payments made to a lender by a borrower, covering the interest incurred on the borrowed funds.