Company a Holds 70 Percent of the Voting Shares of Company

question 17

Multiple Choice

Company A holds 70 percent of the voting shares of Company B.During 2008,Company B sold land with a book value of $125,000 to Company A for $150,000.Company A continues to hold the land at the end of the year.The companies file separate tax returns and are subject to a 40 percent tax rate.Assume that Company A uses the basic equity method in accounting for its investment in Company B.
-Assume the Company A holds the land at the end of 2009.The eliminating entry relating to the intercorporate sale of land to be entered in the consolidation workpaper prepared at the end of 2009 will include a debit to Retained Earnings for:

• A)$4,500.
• B)$7,500.
• C)$15,000.
• D)$10,500.

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