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

question 30

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.Compute Parker's reported gain or loss on its internal accounting records prior to consolidation relating to the land for 2022.

• A) $12,000 gain.
• B) $5,000 loss.
• C) $12,000 loss.
• D) $7,000 gain.
• E) $7,000 loss.

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Definitions:

Cost-output Elasticity

A measure of how responsive the total cost of production is to a change in the quantity produced.

Long-run Cost Function

A representation of the relationship between output and the cost of production when all inputs, including capital, can be varied.

Short-run Cost Function

The costs a company incurs in the production of goods or services within a short period, considering some inputs are fixed.

Long-run Cost Curve

A graphical representation showing the minimum cost at which a firm can produce any given level of output in the long run, when all inputs are variable.