On January 1, 2011 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain.  The land is sold by Humphrey to an outside party in 2013.  What is the effect of the intercompany sale of land on 2011 consolidated net income? Select one: a.Consolidated net income will be $20,000 greater than it would have been had the sale not occurred. b.Consolidated net income will be $16,000 less than it would have been had the sale not occurred. c.Consolidated net income will be $20,000 less than it would have been had the sale not occurred. d.Consolidated net income will be the same as it would have been had the sale not occurred.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.