EXERCISE $7-6$

Calculating Gain on Sale $\backslash (\backslash$underline$\{\backslash$mathrm$\{$LO$\}9\}\backslash )$

P Company owns $\backslash (90\backslash \%\backslash )$ of the outstanding common stock of S Company. On January $1,2025,$ S Company sold land to P Company for $\backslash (\backslash$$ $600,000\backslash ).$ S Company originally purchased the land for $\backslash (\backslash$$ $400,000\backslash ).$

On January $1,2026,$ P Company sold the land purchased from S Company to a company outside the affiliated group for $\backslash (\backslash$$ $700,000\backslash ).$

Required:

A$.$ Calculate the amount of gain on the sale of the land that is recognized on the books of P Company in $2026.$

B$.$ Calculate the amount of gain on the sale of the land that should be recognized in the consolidated financial statements in $2026.$

C$.$ Prepare in general journal form the workpaper entries necessary because of the intercompany sale of land in the consolidated financial statements workpaper for the year ended $31,2026.$