Porter Co. owned all of the voting common stock of Simi Corp. The corporations' balance sheets dated December 31, 2018, include the following balances for land: for Porter - $416,000, and for Simi - $256,000. On the original date of acquisition, the book value of Simi's land was equal to its fair market value. On April 4, 2020, Porter sold to Simi a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2020. What is the consolidated balance for land on the 2020 balance sheet?

Question

Business

Mireya Duffy

12 November, 16:51

Porter Co. owned all of the voting common stock of Simi Corp. The corporations' balance sheets dated December 31, 2018, include the following balances for land: for Porter - $416,000, and for Simi - $256,000. On the original date of acquisition, the book value of Simi's land was equal to its fair market value. On April 4, 2020, Porter sold to Simi a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2020. What is the consolidated balance for land on the 2020 balance sheet?

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Paula Hayden · Answer 1

Answer: $672,000

Explanation:

Porter sold land to Simi which means that their land balance reduces. Simi's however increases by the same amount. As Porter owned all the voting stock, the sale will be accounted for at the book value.

The Consolidated balance for land in 2020 will therefore be calculated as,

= (Porter land value - Sales price) + (Simi land value + Sales price)

= (416,000 - 65,000) + (256,000 + 65,000)

= 351,000 + 321,000

= $672,000

The book value of the Consolidated land will be $672,000 in 2020.