Stiller Company, an 80% Owned Subsidiary of Leo Company, Purchased

question 9

Multiple Choice

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2010, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2010 and 2011, respectively. Leo uses the equity method to account for its investment. On a consolidation worksheet, having used the equity method, what adjustment would be made for 2011 regarding the land transfer?

• A) Debit retained earnings for $15,000.
• B) Credit retained earnings for $15,000.
• C) Debit retained earnings for $50,000.
• D) Credit retained earnings for $50,000.
• E) Debit investment in Stiller for $15,000.

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Definitions:

Ethnocentrism

The belief in the inherent superiority of one's own ethnic group or culture, often accompanied by a devaluation of other groups or cultures.

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