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

question 24

Multiple Choice

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute Stark's reported gain or loss relating to the land for 2014.

• A) $5,000 loss.
• B) $5,000 gain.
• C) $7,000 loss.
• D) $7,000 gain.
• E) $0.

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Definitions:

Sum-Of-The-Years'-Digits

A depreciation method that accelerates the expense recognition, based on a descending fraction of the sum of the year digits.

Depreciation Expense

Apportioning the expenditure of a substantial asset over its operational life.

Residual Value

The estimated value that an asset will be worth at the end of its useful life, often considered in leasing or depreciation calculations.

Double-Declining-Balance

An accelerated method of depreciation that doubles the regular depreciation rate, emphasizing higher depreciation expenses in the earlier years of an asset's life.