Asked by Brianna Baldwin-Hayes on Apr 25, 2024
Verified
A few years ago, Locke Ltd. purchased a machine from its wholly owned subsidiary, Dubois Ltd., for $90,000. Locke has just sold the machine to an unrelated party for a $15,000 gain. At the time of the sale, there was still an unrealized gain of $50,000 from the purchase from Dubois. With this sale of the asset to the unrelated party, what is the amount of gain that should be recognized on Locke's consolidated financial statements?
A) $15,000
B) $50,000
C) $55,000
D) $65,000
Unrealized Gain
An increase in the value of an asset or investment that has not yet been sold and thus, the gain has not been realized as actual profit.
Consolidated Financial Statements
Financial statements that show the financial results and position of a parent company and its subsidiaries as if they were a single entity.
Wholly Owned Subsidiary
A firm entirely possessed by another corporation, known as the parent company, holding all of its share capital.
- Practice the elimination of unrealized gains or losses in dealings between parent and subsidiary companies.
Verified Answer
PH
padel humaidi556 days ago
Final Answer :
D
Explanation :
The correct amount of gain to be recognized on the consolidated financial statements is $65,000. This includes the $15,000 gain from the sale to the unrelated party and the $50,000 unrealized gain from the initial purchase from Dubois Ltd., which becomes realized upon sale to the unrelated party.
Learning Objectives
- Practice the elimination of unrealized gains or losses in dealings between parent and subsidiary companies.