Real Estate Transaction Involving Controlled Entities Pye Inc. owns 100% of both Sye Savings and Loan and Tye Realty. Tye owns several parcels of undeveloped land on the outskirts of Phoenix, Arizona. On 4/1/06, Tye sold its Hidden Valley parcel to Dymo Development for $16 mil¬

lion. Tye had purchased this parcel two years before for $5 million.

Dymo made a cash down payment of $4 million to Tye and issued a $12 million, 10% prom¬

issory note for the balance. Dymo, which is thinly capitalized (at $30,000), borrowed $4 million from Sye Savings and Loan to make the $4 million cash down payment. Under current GAAP, the minimum down payment needed to recognize profit on a real estate sale is 25%. Pye, Sye, and Tye are audited by the same firm of certified public accountants, Lowe, Price, and Sells.

Required 1. May Pye report this $11 million profit in its 2006 consolidated statements?

2 If your answer to requirement 1 is no, what amounts would be reported in (1) the consolidated income statement and (2) the consolidated balance sheet?