Question 1

Parent Corp owns 100% of Sub Corp. They file a consolidated return. In Year 1, Parent sells land to Sub for $150,000 (Parent's basis was $100,000). In Year 3, Sub sells the land to an unrelated third party for $180,000. What is the consolidated gain reported in Year 1 and Year 3?

Accepted Answer

Intercompany transactions: Defer gain/loss until the asset leaves the group. Year 1: $0 recognized. Year 3: Recognize original deferred gain + new gain.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Recognizing gain in Year 1; forgetting to include the deferred gain in Year 3.

Parent Corp owns 100% of Sub Corp. They file a consolidated return. In Year 1, Parent sells land to Sub for $150,000 (Parent's basis was $100,000). In Year 3, Sub sells the land to an unrelated third party for $180,000. What is the consolidated gain reported in Year 1 and Year 3?

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