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

question 21

Multiple Choice

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012.
-Which of the following will be included in a consolidation entry for 2010?

• A) Debit loss for $5,000.
• B) Credit loss for $5,000.
• C) Credit land for $5,000.
• D) Debit gain for $5,000.
• E) Credit gain for $5,000.

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Definitions:

Residual Income

Residual income is the profit remaining after deducting all required costs of capital from operating income.

Margin

Typically refers to the difference between the selling price of a product and its cost, used to measure profitability.

Turnover

The rate at which inventory or assets are sold and replaced or the rate at which employees are replaced in a business.

Residual Income

The amount of income that an investment or project generates above the minimum rate of return.