ACC 230

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James's inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of intra-entity gross profit in inventory at December 31 that should be eliminated in the consolidation process is

$30,000.00 Merchandise remaining in James's inventory $250,000 × 40% = $100,000. Intra-entity gross profit (based on subsidiary's gross profit rate as the seller) $100,000 × 30% = $30,000. James's ownership percentage of Carl has no impact on this computation.

Brief, Inc., had a receivable from a foreign customer that is payable in the customer's local currency. On December 31, 2017, Brief correctly included this receivable for 200,000 local currency units (LCU) in its balance sheet at $110,000. When Brief collected the receivable on February 15, 2018, the U.S. dollar equivalent was $120,000. In Brief's 2018 consolidated income statement, how much should it report as a foreign exchange gain?

$10,000

The current spot rate to purchase a foreign currency is $1.00. The intrinsic value of an option to purchase that foreign currency at a strike price of $.90 is

$0.10 per foreign currency unit

In accounting for foreign currency transactions, which of the following approaches is used in the United States?

Two-transaction perspective; accrue foreign exchange gains and losses.

The appreciation of a foreign currency will result in an importer recognizing a foreign exchange ___ when it makes a purchase from a foreign supplier and pays the supplier in foreign currency after the date of purchase

loss

Time value of a foreign currency option reflects

the fact that the intrinsic value of the option could increase as time passes

When a parent applies the equity method and upstream intre-entity gross profits exist in the beginning Inventoru, the debit to the subsidiary's Retained Earnings account in Consolidated Entry S

will decrease by the debit to the subsidiary's Retained Earnings account in Consolidation Entry &*G

Using the purchase method, goodwill is generally defined as:

Cost of the investment less the subsidiary's Fair Value at acquisition date

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required

The premium paid to acquire a foreign currency option is equal to the sum of the option's

Intrinsic value and time value

In a purchase or acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

Parent: BV Subsidiary: FV

Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $160,000 to Parkette for $200,000. A total of 18 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $297,500 to Parkette for $350,000. A total of 30 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $607,500 while Skybox reported $450,000. What is the consolidated cost of goods sold in 2018?

$716,050. Intra-Entity Gross Profit, 12/31/17: Intra-entity gross profit ($200,000 - $160,000)=$40,000 Inventory remaining at year's end 18 % Intra-entity gross profit, 12/31/17 $ 7,200 Intra-Entity Gross Profit, 12/31/18: Intra-entity gross profit ($350,000 - $297,500)=$ 52,500 Inventory remaining at year's end 30 % Intra-entity gross profit in inventory, 12/31/18 $ 15,750 Consolidated cost of goods sold: Parent balance $ 607,500 Subsidiary balance 450,000 Remove intra-entity transfer (350,000) Recognize 2017 deferred gross profit (7,200) Defer 2018 intra-entity gross profit 15,750 Cost of goods sold $ 716,050

When an intra-entity sale of a depreciable asset occurs at a price in excess of the asset's carrying amount, which of the following result from a consolidated entity perspective?

-Depreciation expense becomes overstated -The carrying amount of the asset becomes overstated by the amount the intra-entity gain -Retained earnings of the selling affiliate become overstated

In accounting for a fair value hedge of a foreign currency denominated asset or liability, the change in fair value of a foreign currency derivative is reported

-as an asset or liability on the BS -as a gain or loss in Net Income

In the year of an intra-entity asset transfer at a price in excess of the asset's carrying amount, Consolidation Entry ED

-reduced accumulated depreciation for the current year's overstatement of depreciation expense -removes the overstatement of expense resulting from depreciating the inflated transfer price of the transferred asset

On January 1, 2018, Johnsonville Enterprises, Inc. acquired 80 percent of Stayer Company's outstanding common shares in exchange for $3,000,000 cash. The price paid for the 80 percent ownership interest was proportionately representative of the fair value of all of Stayer's shares. At acquisition date, Stayer's books showed assets of $4,200,000 and liabilities of $1,600,000. The recorded assets and liabilities had fair values equal to their individual book values except that a building (10-year remaining life) with book value of $195,000 had an appraised fair value of $345,000. Stayer's books showed a $175,500 carrying amount for this building at the end of 2018. Also, at acquisition date Stayer possessed unrecorded technology processes (zero book value) with an estimated fair value of $1,000,000 and a 20-year remaining life. For 2018 Johnsonville reported net income of $650,000 (before recognition of Stayer's income), and Stayer separately reported earnings of $350,000. During 2018, Johnsonville declared dividends of $85,000 and Stayer declared $50,000 in dividends. Compute the amounts that Johnsonville Enterprises should report in its December 31, 2018, consolidated financial statements for the following items: 1) Stayer's building (net of accumulated depreciation)= 2)Stayer's technology processes (net of accumulated amortization).= 3)Net income attributable to the noncontrolling interest. 4)Net income attributable to controlling interest. 5)Noncontrolling interest in Stayer.

1) Stayer's building (net of accumulated depreciation)=$310,500 2)Stayer's technology processes (net of accumulated amortization).=$950,000 3)Net income attributable to the noncontrolling interest= $57,000 4)Net income attributable to controlling interest.= $878,000 5)Noncontrolling interest in Stayer.=$797,000

Which of the following statements is true regarding the subsidiary's investment in its parent's common stock?

The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to treasury stock.

The primary difference between the partial equity and the complete equity methods of accounting for business combinations is:

under the complete equity method, the parent records amortization and/or depreciation to account for the difference between implied and book value.