exam 2 acc 618

A variable interest entity can take all of the following forms except a(n): Trust. Partnership. Joint venture. Corporation. Estate.

ESTATE

Sales to outsiders $173,600 $115,300 $134,000 $108,900 Intersegment revenue transfers 44,500 37,400 19,600 26,100 What amount of revenues must be generated from one customer before that party must be identified as a major customer?

$53,180.

Flax Co. acquired 80% percent of the voting common stock of Levinson Corp. on January 1, 2021. During the year, Flax made sales of inventory to Levinson. The inventory cost Flax $275,000 and was sold to Levinson for $420,000. Levinson held $84,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2021, is:

29000

On January 1, 2021, Daniel Corp. acquired 80% of the voting common stock of Phillips Inc. During the year, Daniel sold to Phillips for $315,000 goods that cost $210,000. At year-end, Phillips owned 30% of the goods transferred. Phillips reported net income of $305,000, and Daniel's net income was $986,000. Daniel decided to use the equity method to account for this investment. What amount of intra-entity gross profit would be deferred in 2021?

31500

What is the total of consolidated revenues at December 31, 2021? Revenues$420,000 $280,000 During 2021, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of the inventory purchase price had been remitted to Pride by Strong at year-end. As of December 31, 2021, 60% of these goods remained in the company's possession.

560000

Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory. The amount of gross profit for the first quarter is:

83000

Which of the following statements is false concerning variable interest entities (VIEs)? a VIEs may be formed as a source of low-cost financing. b Most VIEs are established for valid business purposes. c Sometimes VIEs do not have independent management. d A VIE cannot take the legal form of a partnership or corporation. e VIEs have little need for voting stock.

A VIE cannot take the legal form of a partnership or corporation.

If new bonds are issued from a parent to its subsidiary, which of the following statements is false? a Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment. b There will be $0 net gain or loss on the bond transaction. c A net gain or loss on the bond transaction will be reported. dInterest revenue needs to be eliminated on the consolidated income statement. e Interest expense needs to be eliminated on the consolidated income statement.

A net gain or loss on the bond transaction will be reported.

The amount of consolidated net income attributable to the noncontrolling interest of a VIE is typically a) dependent completely on the percentage of equity voting shares owned by the primary beneficiary. B) zero. c) determined by contractual arrangements specifying profit and loss distributions across the primary beneficiary and the noncontrolling interest. D) determined by voting stock ownership percentages of the equity investors.

C

In a father-son-grandson combination, which of the following statements is true? aCompanies that are solely in subsidiary positions must have their accrual-based net income computed first in the consolidation process. bFather-son-grandson configurations never require consolidation unless one company owns 100% of at least one other member of the combined group. cThe order of the computation of accrual-based net income is not important in the consolidation process. d The parent must have its accrual-based net income computed first in the consolidation process.

Companies that are solely in subsidiary positions must have their accrual-based net income computed first in the consolidation process.

Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.

Connecting affiliatioon

What information does U.S. GAAP require to be disclosed for a major customer? a The identity of the customer. b The operating segment reporting sales to the customer. c The geographic area of the customer. d The specific products or services purchased by the customer. eThe length of time the customer has been a customer of the company.

b The operating segment reporting sales to the customer.

Wilson owned equipment with an estimated life of 10 years when the equipment was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2020. On January 1, 2020, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2020 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends declared: Compute the amortization of gain through a depreciation adjustment for 2022 for consolidation purposes.

$2,000.

Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Separate company net incomes for 2021 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 gross profit on intra-entity transfers to Maroon. Separate net income$420,000$280,000$280,000 The accrual-based net income of Beagle Co. is calculated to be (parent)

$805,280.

TotalRevenue Profit Assets at 12/31/20 A$14,500,000 $2,475,000 $29,000,000 B 11,300,000 1,980,000 24,700,000 C 8,450,000 1,690,000 17,600,000 D 4,300,000 780,000 10,450,000 E 6,000,000 963,000 9,900,000 F 2,150,000 314,000 4,300,000 $46,700,000 $8,202,000 $95,950,000 What is the minimum amount of assets that each of these segments must own to be considered separately reportable? $

$9,595,000.

When indirect control is present, which of the following statements is true? aAt least one company within the consolidated entity holds a parent and a subsidiary relationship. bThe parent company owns a percent of subsidiary and subsidiary owns a percent of the parent. cConsolidated financial statements are required for only one subsidiary. dRecognition of income for an indirectly owned subsidiary is ignored. e Only dividend income is recognized for an indirectly owned subsidiary.

At least one company within the consolidated entity holds a parent and a subsidiary relationship.

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset? a) Net income attributable to the noncontrolling interest is affected only when the transfer is upstream. b Net income attributable to the noncontrolling interest is always affected by a gain on the transfer. c Net income attributable to the noncontrolling interest is affected by a downstream gain only. d Net income attributable to the noncontrolling interest is never affected by a gain on the transfer.

Net income attributable to the noncontrolling interest is affected only when the transfer is upstream.

Which tests must a company use to determine which operating segments require separate disclosure? asset liabilites test

Revenue test, profit or loss test, and asset test.

What is the appropriate treatment in an interim financial report for a LIFO liquidation? a The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim balance sheet and the interim income statement. b The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim income statement but not the interim balance sheet. c The LIFO liquidation should always be reflected in gross profit on an interim income statement. dThe LIFO liquidation is always ignored for interim reporting. eThe LIFO liquidation should only be reflected in gross profit on an interim income statement if it is determined that it will not be replaced by year-end.

The LIFO liquidation should only be reflected in gross profit on an interim income statement if it is determined that it will not be replaced by year-end.

On October 6, 2021, Ronan Corp. sold land to Bane Co., its wholly owned subsidiary. The land cost $72,400 and was sold to Bane for $96,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized?

sells to 3rd party

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2020. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2020 and 2021, respectively. Pepe uses the equity method to account for its investment in Devin. What is the consolidated gain or loss on equipment for 2020?

0

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements? a The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. b The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE. d The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. eThe business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance.

The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership.

Which of the following is true concerning the treasury stock approach in accounting for a subsidiary's investment in parent company stock? aThe treasury stock approach increases total stockholders' equity. bThe subsidiary must apply the equity method in accounting for the investment if the treasury stock approach is used. cThe cost of parent shares is treated as if the shares are no longer outstanding. dThe original cost of the subsidiary's investment reduces long-term liabilities.

The cost of parent shares is treated as if the shares are no longer outstanding.

Which of the following consolidation procedures are needed when one affiliate within a consolidated group acquires the debt of another affiliate from a third party? a The intra-entity investment in debt securities is consolidated with the other assets of the consolidated entity. b The ongoing amortization of intra-entity discounts and premiums must be taken into account in the consolidation process. c The debt is retired and removed from the parent's and subsidary's books, so no considerations need to be made in consolidation. d The intra-entity debt is consolidated with the other debt of the consolidated entity.

The ongoing amortization of intra-entity discounts and premiums must be taken into account in the consolidation process.

Which of the following statements is true regarding mutual ownership between a parent and its subsidiary? a The treasury stock approach is required to reflect parent shares held by the subsidiary. bThe treasury stock approach is required to eliminate subsidiary shares held by the parent company. c Only the subsidiary's shares held by the parent should be eliminated in consolidation. d The shares of the parent held by a subsidiary should be treated as outstanding stock on the consolidated balance sheet.

The treasury stock approach is required to reflect parent shares held by the subsidiary.

Because a parent company likely controls intra-entity debt reacquisition activity, the textbook attributes the gain or loss from retirement on such intra-entity debt... a )a solely to the parent company. b)across the parent and noncontrolling interest according to relative common stock ownership percentages. c. solely to the noncontrolling interest. d) equally to the parent and the noncontrolling interest.

solely to the parent company.

Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except: a Revenues from external customers. b Unusual items. c Cost of goods sold. d Depreciation expense.

COGS

On January 1, 2021, a subsidiary buys 12% of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported separate company income of $1,000,000 (excluding investment income from the subsidiary), and paid $120,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021? a) There is no effect on the consolidated balance sheet, because the effects have been eliminated. b) Consolidated stockholders' equity is reduced

Consolidated stockholders' equity is reduced by $400,000.

How should seasonal revenues be reported in an interim report? aDisclose the seasonal nature of business operations but do not include other reports supplemental to the interim report. bDisclose the seasonal nature of business operations, and include a pro forma report for the next 12-month period. cDisclose the seasonal nature of business operations, and consider a report for the 12-month period ended at the interim date to supplement the interim report. dDisclose the seasonal nature of business operations, and consider a report for the 12-month period ended at the interim date to supplement the interim report.

cDisclose the seasonal nature of business operations, and consider a report for the 12-month period ended at the interim date to supplement the interim report.

Which of the following statements is false concerning the number of operating segments that should be disclosed? a Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year. b At least 75 percent of total company sales made to outsiders should be presented. c If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds. d The practical limit to the number of operating segments is 10.

Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year.