On January 1, Year 1, Spike Ltd. purchased land from outsiders for $100,000. On December 31, Year 1, Pike Co. acquired all of the common shares of Spike. The fair value of Spike’s land on this date was $115,000.
On December 31, Year 2, Spike sold its land to Pike for $128,000. On December 31,
Year 3, Pike sold the land to an arm’s-length party for $140,000.
Both companies use the cost model for valuing their land and pay income tax at the rate of 40%. Assume that any gain on sale of land is fully taxable. The only land owned by these two companies is the land purchased by Spike in Year 1.
Determine the account balances for land, gain on sale of land, and income tax on gain for Years 1, 2, and 3 for three sets of financial statements (i.e., separate-entity statements for Pike and Spike and consolidated statements) by completing the following table:

  • CreatedJune 08, 2015
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