Advanced Accounting ch5 LS

A parent company transfers inventory to its 80% owned subsidiary. How much of the intra-entity gross profit in the transferred ending inventory serves to reduce the consolidated net income attributable to the noncontrolling interest? -100% -80% -0% -20%

-0%

In period's subsequent to a depreciable asset transfer (gain recorded) from a subsidiary to its parent, which of the following *TA adjustments remains constant over the remaining life of the asset? -Retained earnings of the seller -The asset account -Accumulated depreciation.

-The asset account

A parent transfers inventory with a cost of $25,000 to its subsidiary at a transfer price of $40,000. The subsidiary resold 50% of this transferred inventory to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G? -$7,500 -zero -$12,500 -$20,000

-$7,500

Inventory transfers among affiliates within a consolidated entity -are always recorded at the original cost to the consolidated entity. -create neither profits nor losses to the consolidated entity. -are included in the computation of consolidated net income. -produce accounting effects that are eliminated in the preparation of consolidated financial statements.

-create neither profits nor losses to the consolidated entity. -produce accounting effects that are eliminated in the preparation of consolidated financial statements.

In the year of an intra-entity depreciable asset transfer at a gain, the accounts and amounts in Consolidation Entries TA and ED will not be affected by -the amount of accumulated depreciation balances of the affiliated involved in the intra-entity transfer. -the parent's choice of investment accounting (initial value, equity or partial equity method). -the amount of depreciation expense recorded by the individual affiliates involved in the intra-entity transfer. -whether the intra-entity transfer was upstream or downstream.

-the parent's choice of investment accounting (initial value, equity or partial equity method). -whether the intra-entity transfer was upstream or downstream.

A parent transfers inventory with a cost of $25,000 to its subsidiary at a transfer price of $40,000. The subsidiary resold the entire purchase to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G? -$15,000 -$40,000 -$25,000 -zero

-zero

When an intra-entity sale has occurred, consolidation worksheet entry TI removes both the related purchase (through a credit to COGS) and a debit to the related _________ acccount.

Sales or Revenue

True or false: Consolidation Entry TL removes the gain on sale from an intra-entity land sale because the land remains under the control of the consolidated entity.

True

When the parent employs the equity method of accounting for its Investment in Subsidiary account, in consolidated financial reports the parent's Retained Earnings account will equal _____retained earnings.

consolidated

The purpose of consolidation entry TI is to -increase the sales account for an intra-entity inventory transfer. -include intra-entity transfers as normal sales/purchases. -increase cost of goods sold for the purchases component of an intra-entity inventory transfer. -remove the effects of intra-entity sales and purchases for the consolidated reporting entity.

consolidated reporting entity.

True or false: In periods subsequent to an intra-entity depreciable asset transfer (at a gain), Consolidation Entry ED debits Accumulated Depreciation and credits Depreciation Expense for the current year's portion of the intra-entity gain on sale.

True

True or false: When intra-entity transferred land is subsequently sold to an outside entity, any remaining deferred gain is recognized in the period of the sale.

True

True or false: To measure appropriately the effect of intra-entity inventory profits on the noncontrolling interest, the direction of the intra-entity transfer (upstream or downstream) should be considered.

True Reason: Downstream transfers only affect the parent company net income and thus no allocation is made to the noncontrolling interest. Upstream sales affect the subsidiary company's net income which is attributable to both the parent and the noncontrolling interest.

How does Consolidation Entry *GL differ when an intra-entity gain resulted from downstream land transfers and the parent uses the equity method for its investment in its subsidiary? -The adjustment to the land account is debited instead of credited. -The Investment in Subsidiary account is debited instead of the parent's Retained Earnings account. -There is no difference to Consolidation Entry *GL

-The Investment in Subsidiary account is debited instead of the parent's Retained Earnings account.

What is the effect on consolidated COGS of intra-entity gross profits in beginning and ending inventories? -Consolidated COGS is increased by intra-entity gross profits in ending inventory and decreased by intra-entity gross profits in beginning inventory. -COGS is decreased by intra-entity gross profits in ending inventory and increased by intra-entity gross profits in beginning inventory. -COGS is unaffected by intra-entity gross profits in ending inventory and beginning inventory.

-Consolidated COGS is increased by intra-entity gross profits in ending inventory and decreased by intra-entity gross profits in beginning inventory.

When does the intra-entity gross profit in ending inventory transferred across affiliates affect the consolidated net income attributable to the noncontrolling interest? -For downstream intra-entity inventory transfers. -For upstream intra-entity inventory transfers. -For no intra-entity inventory transfers. -For all intra-entity inventory transfers.

-For upstream intra-entity inventory transfers.

In the year of an intra-entity asset transfer at a price in excess of the asset's carrying amount, Consolidation Entry ED -includes depreciation expense on the entire transfer price of the transferred asset. -increases accumulated depreciation for the amount of the intra-entity gain. -reduced accumulated depreciation for the current year's overstatement of depreciation expense. -removes the overstatement of expenses resulting from depreciating the inflated transfer price of the transferred asset.

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

After combining the individually recorded revenues of a parent and subsidiary, what is the effect on consolidated revenues of intra-entity inventory transfers? -Consolidated revenues are increased by the entire price of the intra-entity transferred inventory. -Consolidated revenues are decreased by intra-entity gross profits in beginning and ending inventories. -Revenues from intra-entity transfers are not included in consolidated revenues.

-Revenues from intra-entity transfers are not included in consolidated revenues.

Why does Consolidation Entry G debit the parent's Investment in Subsidiary account instead of its Retained Earnings account for downstream intra-entity gross profits in beginning inventory when the parent employs the equity method? -The debit to the Investment account is needed to bring the account to a zero balance in consolidation. -The equity method removes intra-entity gross profits from the parent's books causing its RE to properly reflect the consolidated balance. -The Investment in Subsidiary account is overstated by the amount of the intra-entity beginning inventory gross profit.

-The debit to the Investment account is needed to bring the account to a zero balance in consolidation. -The equity method removes intra-entity gross profits from the parent's books causing its RE to properly reflect the consolidated balance.

In the year of an intra-entity land transfer resulting in the recording of a gain, a consolidation entry is needed to -ensure the gain is not reported in the consolidated income statement. -ensure the land is reported at an amount that includes the intra-entity gain. -include the gain in the consolidated income statement. -write-down the value of the land by the amount of the intra-entity gain.

-ensure the gain is not reported in the consolidated income statement. -write-down the value of the land by the amount of the intra-entity gain.

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, Consolidation Entry G credits Inventory because -The goods have been sold to outsiders and no longer are in the consolidated entity's possession. -From a consolidated perspective, the account is overstated by the amount of the intra-entity gross profit remaining in ending inventory. -From a consolidated perspective, the account is understated by the amount of the intra-entity gross profit remaining in ending inventory.

-From a consolidated perspective, the account is overstated by the amount of the intra-entity gross profit remaining in ending inventory.

When intra-entity transferred land is subsequently sold to an outside entity, how is the originally deferred intra-entity gain on sale reported in consolidated financial statements? -The intra-entity gain is simply ignored in the period that the land is sold to the outside entity. -The intra-entity gain continues to be deferred indefinitely. -The intra-entity gain is recognized as part of consolidated net income in the period that the land is sold to the outside entity. -The intra-entity gain is removed from consolidated net income in the period that the land is sold to the outside entity.

-The intra-entity gain is recognized as part of consolidated net income in the period that the land is sold to the outside entity.

In preparing consolidated financial statements, the gross profit or loss recorded by individual affiliates for intra-entity asset transfers is -included in inventory in the consolidated balance sheet. -excluded from net income. -included as part of net income. -excluded from inventory in the consolidated balance sheet.

-excluded from net income. -excluded from net income.

Consolidation Entry G credits COGS because the beginning inventory component of COGS is -understated by the intra-entity gross profit. -overstated by the intra-entity gross profit. -absent due to the intra-entity gross profit.

-overstated by the intra-entity gross profit.

Because consolidation worksheet entries are not posted to any affiliate's individual accounting records, intra-entity ending inventory gross profits from the previous year appear in the subsequent year's beginning inventory of the affiliate who now possesses the inventory. To correct for the presence of intra-entity gross profits in beginning inventory, Consolidation Entry *G. -increases COGS. -increases the inventory account. -decreases the inventory account. -reduces COGS.

-reduces COGS.

In the year of an intra-entity asset transfer at a price in excess of the asset's carrying amount, Consolidation Entry TA -restores the amount of accumulated depreciation removed when the sale was recorded on the selling entity's books. -ensures the inclusion of the intra-entity gain in the consolidated income statement. -decreases accumulated depreciation for the amount of the intra-entity gain. -increases accumulated depreciation for the amount of the intra-entity gain.

-restores the amount of accumulated depreciation removed when the sale was recorded on the selling entity's books. -ensures the inclusion of the intra-entity gain in the consolidated income statement. -decreases accumulated depreciation for the amount of the intra-entity gain.

Consolidation worksheet entries are not posted to the books of the members of the consolidated group. Therefore, in years subsequent to an upstream intra-entity land sale that records a gain, a consolidation worksheet entry is needed to adjust -the retained earnings beginning balance for the company that originally recorded the gain on sale of the land. -the gain on sale account. -the retained earnings beginning balance for the company that acquired the land in the intra-entity transfer. -the land account.

-the retained earnings beginning balance for the company that originally recorded the gain on sale of the land. -the land account.

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, Consolidation Entry G debits COGS because -COGS is overstated by the amount of the gross profit on intra-entity inventory transfers remaining at year-end -the ending inventory component of COGS is overstated by the intra-entity gross profit remaining at year-end. -the debit to COGS reduces consolidated net income by the amount of the intra-entity gross profit. it increases the gross profit recognized on the sales to outsiders.

-the ending inventory component of COGS is overstated by the intra-entity gross profit remaining at year-end. -the debit to COGS reduces consolidated net income by the amount of the intra-entity gross profit.

Consolidation Entry G involves a debit to the Investment in a Subsidiary account for when -the parent has applied the equity method and the intra-entity sale was downstream. -the parent has applied the equity method and the intra-entity sale was upstream. -the parent has applied the initial method and the intra-entity sale was downstream. -the parent has applied the initial method and the intra-entity sale was upstream.

-the parent has applied the equity method and the intra-entity sale was downstream.