The four questions refer to the following:
A Company owns 100 percent of Z Company's outstanding common stock. A purchases land from an outside party for $20,000 (T1). A Company subsequently sells the land to Z for $30,000 (T2). Z later sells the land to another outside party for $40,000 (T3).
Question 1: If only T1 is completed during the current period, what is the gain reported by the consolidated entity for the current period?
a. $0
b. $10,000
c. $20,000
d. $40,000
c. None of the above
Question 2: If all three transactions are completed during the current period, what is the gain reported by the consolidated entity for the period?
a. $-0-
b. $10,000
c. $20,000
d. $40,000
e. None of the above
Question 3: Assume that T1 and T2 were completed in a prior period. If T3 is completed in the current period, what is the amount of gain reported by Z Company in its financial statements?
a. $-0-
b. $10,000
c. $20,000
d. $40,000
e. None of the above
Question 4: Assume that only T1 and T2 are completed during the current period. What is the amount of gain reported by A Company in its financial statements?
a. $-0-
b. $10,000
c. $20,000
d. $40,000
e. None of the above