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

question 110

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.
-Compute the gain or loss relating to the land that will be reported in consolidated net income for 2012.

• A) $5,000 loss.
• B) $7,000 gain.
• C) $12,000 gain.
• D) $7,000 loss.
• E) $12,000 loss.

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Definitions:

Total Fixed Overhead

The sum of all costs that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, used to cover fixed costs and to generate profit.

Production Capacity

The maximum output that an organization can produce with the available resources in a given period.

Operating Loss

The amount by which the operating expenses of a business exceed its gross profits.