Parent Sold Land to Its Subsidiary Resulting in a Gain

question 14

Multiple Choice

Parent sold land to its subsidiary resulting in a gain in 2016, the year of transfer.The subsidiary sold the land to an unrelated third party for a gain in 2019.Which of the following statements is true?

• A) A gain will be recognized in the consolidated income statement in 2016.
• B) A gain will be recognized in the consolidated income statement in 2019.
• C) No gain will be recognized in the 2019 consolidated income statement.
• D) Only the parent company will recognize a gain in 2019.
• E) The subsidiary will recognize a gain in 2016.

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Definitions:

Average Cost Curve

A graphical depiction showing the cost per unit of output at different levels of production, reflecting the variability in total cost over volume.

Positive Profit

A financial gain that occurs when the revenues received from business activities exceed the expenses, costs, and taxes needed to sustain the activity.

Scale of Operation

The size at which a company or factory operates, often impacting its production efficiency and costs.

Long Run

pertains to a time period in economics during which all factors of production and costs are variable, allowing for full adjustment to any change.