P, S1, and S2 Corporations have filed consolidated tax returns for several years. In the current year (Year 1), S1 sells land to S2 for $275,000. S1 purchased the land for $120,000 several years ago and has held it for possible expansion. S2 constructs a new plant facility on the land. In Year 3, S2 sells the land and the plant facility to a third party for cash, with $400,000 of the sales price attributable to the land.
a. What are the intercompany item, the corresponding item, and the recomputed corresponding item for this intercompany transaction?
b. In what year(s) are S1’s gain or loss and S2’s gain or loss included in consolidated taxable income?