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Unformatted text preview: ith a basis of
$60,000 and a fair value of $75,000, to Sly for $100,000. Sly sold the land in December 19X2 for
$125,000. In its 19X2 and 19X1 tax returns, what amount of gain should be reported for these
transactions in the consolidated return?
Choice "d" is correct. The $40,000 gain realized by Potter ($100,000 − $60,000) on the sale to Sly is an
intercompany gain that is eliminated in consolidation. Therefore, the 19X1 consolidated return gain is $0.
In 19X2 when Sly sells the land to an outside party, the full gain of $65,000 is recognized ($125,000 −
$60,000 original basis) on the consolidated return.
Choice "a" is incorrect. The $40,000 gain on the sale from Potter to Sly is intercompany gain and would
be eliminated during consolidation. Once the sale is completed from Sly to another party (not in the
consolidated return), the full $65,000 gain would be recognized in the tax return.
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land