Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2017, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2017, 2018, and 2019, respectively. Parker sold the land purchased from Stark in 2017 for $92,000 in 2019. Both companies use the equity method of accounting. What is gain or loss to the consolidated entity in 2019

Question

Milagros Dillon

Business

29 August, 06:38

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2017, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2017, 2018, and 2019, respectively. Parker sold the land purchased from Stark in 2017 for $92,000 in 2019. Both companies use the equity method of accounting. What is gain or loss to the consolidated entity in 2019

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Avila · Answer 1

Loss of $7,000

Explanation:

Computation of gain or loss to be reported in the consolidated net income during 2019

Total gain recognized by Intel - entity transactions. = >. $12,000

($92,000-$80,000)

Less; loss on transaction from Stark to Parker = >. $15,000

($85,000-&60,000)

Total gain to be reported in the consolidated net income during 2019 = >. $7,000