Stiller Company, an 80% Owned Subsidiary of Leo Company, Purchased

question 102

Multiple Choice

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2020, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2020 and 2021, respectively. Leo uses the equity method to account for its investment.Compute the gain or loss on the intra-entity transfer of land that should be reported on the books of Leo prior to consolidation.

• A) $15,000 loss.
• B) $15,000 gain.
• C) $50,000 loss.
• D) $50,000 gain.
• E) $65,000 gain.

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Definitions:

Articles of Partnership

A document that outlines the terms and conditions under which a partnership operates, including responsibilities, profit distribution, and decision-making processes.

Compensation

Payment or benefit provided to someone in exchange for services rendered or as restitution for loss or injury.

Mortuary

A facility where the bodies of deceased persons are prepared for burial or cremation and where funerals might be conducted.

Legal Capacity

Legal capacity is the ability of an individual or entity to enter into legally binding contracts, sue or be sued, and make decisions that carry legal consequences.