PeopleMag Sells a Plot of Land for $100,000 to Seven

question 29

Essay

PeopleMag sells a plot of land for $100,000 to Seven Star Company,its 100 percent owned subsidiary,on January 1,2008.The cost of the land was $75,000,when it was purchased in 2007.In 2010,Seven Star sells the land to Hot Properties Inc. ,an unrelated entity,for $120,000.How is the land reported in the consolidated financial statements for 2008,2009 and 2010?

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present values, often used in investment appraisal and risk assessment.

Duration

The measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, often expressed in years.

Coupon Bond

A type of bond that pays the holder interest payments at fixed intervals (usually annually or semi-annually) until the bond matures, at which point the principal amount is repaid.

Interest-Rate Risk

The potential for investment losses that result from a change in interest rates, affecting the value of fixed-income securities inversely.