(Solved) Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany ...

Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, recognizing a $25,000 gain. Subsidiary holds the land as an investment for five years before selling the land to a nonmember of the group on an installment basis in a sale in which a $50,000 gain is realized. The sales proceeds are collectible in four equal installments with an appropriate interest amount being charged to the purchaser. Which statement is correct?
A) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation. A $50,000 capital gain is included in consolidated taxable income when Subsidiary sells the land.
B) A $25,000 capital gain from Parent and a $50,000 capital gain from Subsidiary are included in consolidated taxable income when Subsidiary sells the land.
C) The $25,000 capital gain from Parent and $50,000 capital gain from Subsidiary are included ratably in consolidated taxable income, commencing in the year the first installment is received.
D) None of the above are correct

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Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany ...

Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts

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