On November 8, 2018, Power Corp. sold land to Wood Co, its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized? A) Proportionately over a designated period of years B) When Wood Co. sells the land to a third party C) No gain may be recognized D) As Wood uses the land. E) When Wood Co. begins using the land productively.

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Business

Eileen Matthews

30 October, 16:02

On November 8, 2018, Power Corp. sold land to Wood Co, its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized? A) Proportionately over a designated period of years B) When Wood Co. sells the land to a third party C) No gain may be recognized D) As Wood uses the land. E) When Wood Co. begins using the land productively.

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Dudley · Answer 1

E) When Wood Co. begins using the land productively.

Explanation:

Wood Co. is the wholly owned subsidiary, and because of that the company should clearly recognize the profit when Wood Co. starts using this land.

Till the time Wood Co does not use it there are chances that it might sell it, further in that case only the profit from sales to third party will be recognized.

Therefore, when there is 100% assurance of using such land by the subsidiary then the holding company can recognize the profit on sale of such land.