What is the elimination entry for intercompany land transactions?

In the context of intercompany land transactions, it is essential to recognize that when one company in a consolidated group sells land to another company within the same group, any gain recognized on that sale must be eliminated for consolidation purposes.

The correct choice reflects this principle, as the entry involves debiting the gain on the sale of land. This action reverses the recorded gain in the selling company's accounts because it does not represent realized income for the consolidated entity. The credit to land adjusts the carrying amount of the land on the acquiring company's books, ensuring that the land is reported at its historical cost rather than the inflated amount resulting from the intercompany transaction.

This adjustment is necessary to avoid overstating the income and assets of the consolidated financial statements, providing a more accurate and fair representation of the group's financial position.

Since the intercompany sale does not affect the overall financial position of the consolidation but merely moves assets within it, the elimination entry maintains the integrity of the financial reporting by cancelling out amounts that reflect intra-group transactions.