In 2017, P Company Sells Land to Its 80% Owned

question 24

Multiple Choice

In 2017, P Company sells land to its 80% owned subsidiary, S Company, at a gain of $50,000. What is the effect of this sale of land on consolidated net income assuming S Company still owns the land at the end of the year?

• A) consolidated net income will be the same as if the sale had not occurred.
• B) consolidated net income will be $50,000 less than it would had the sale not occurred.
• C) consolidated net income will be $40,000 less than it would had the sale not occurred.
• D) consolidated net income will be $50,000 greater than it would had the sale not occurred.

---

Definitions:

Dividend Decision

The decision by management regarding the portion of earnings paid to shareholders as dividends. The alternative is to retain the money, investing it in the company for future growth.

Cash Dividends

Distributions made to shareholders by a company, often in the form of profit sharing.

Retain Earnings

Profits kept in the company to reinvest in the business or pay down debt, not distributed to shareholders.

Dividend Policy

The strategy a company uses to decide how much it will pay out to shareholders in dividends.