In 2014, P Company Sells Land to Its 80% Owned

question 4

Multiple Choice

In 2014, P Company sells land to its 80% owned subsidiary, S Company, at a gain of $50,000.What is the effect of this sale of land on consolidated net income assuming S Company still owns the land at the end of the year?

• A)consolidated net income will be the same as if the sale had not occurred.
• B)consolidated net income will be $50,000 less than it would had the sale not occurred.
• C)consolidated net income will be $40,000 less than it would had the sale not occurred.
• D)consolidated net income will be $50,000 greater than it would had the sale not occurred.

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Definitions:

Straight-Line Method

A depreciation approach assigning a consistent depreciation expense amount to an asset throughout its operational lifespan.

Estimated Residual Value

The anticipated market value of an asset at the end of its useful life.

Depreciated

Refers to the reduction in the recorded cost of a fixed asset in a systematic manner over its useful life.

Patent Impairment

Refers to the decrease in the value of a patent, often due to technological advances, legal issues, or changes in market demand.