Advanced Financial Accounting

Parent owns 80% of Sub. Parent sells equipment to Sub for a gain of $50,000 at the beginning of 2013. At that time, the equipment had a remaining life of five years. Sub uses straight-line depreciation. How will the intercompany eliminations for this transaction affect consolidated income for 2014, assuming Sub still holds the equipment?

$10,000 increase

The acquiring company reports a gain on acquisition if the acquisition cost is less than the fair value of the identifiable net assets acquired. This could motivate companies to overstate the gain so they would look better financially. How could companies overstate the gain?

Overstate the value of previously unreported intangibles acquired.

A parent sold a building to its subsidiary at a gain at the beginning of 2013. Which statement is false concerning this transaction?

Parent's building account (original cost) at the end of 2013 is overstated

If an acquiring company pays less than the fair value of the identifiable assets less liabilities acquired, the difference is:

Reported as a gain on the income statement

On the consolidated statement of cash flows, cash dividends paid to the shareholders of the parent company are:

Reported in the financing activities section

Sub provides services to Parent during 2012. This is how Parent and Sub report these services on their respective income statements: Parent- Service Expense $400,000 Sub- Service Revenue $400,000 Service Expense $350,000 Service Revenue Service Expense

SR-$0; SE-$350,000

Which one of the following items is most likely to be reported as goodwill?

Skilled Workforce

Which is the best measure of fair value per share for the noncontrolling interest in a subsidiary at the date of acquisition, if the subsidiary's stock is actively traded?

The market value per share.

If a subsidiary has a different accounting year-end than its parent,

The subsidiary's year-end can differ from that of the parent, up to three months

Which statement is false regarding intercompany sales of property between a parent and a subsidiary?

If depreciable property is sold by the subsidiary to the parent during 2014 at a gain, there is no need to adjust the noncontrolling interest in the subsidiary's income for 2015

Which statement is TRUE regarding intercompany sales of merchandise?

If the subsidiary sells merchandise to the parent(upstream intercompany sale), the Noncontrolling Interest must be Increased by its share of Realized Profits in the Parent's Beginning Inventory

For a bargain purchase with a noncontrolling interest, the gain on acquisition is:

The fair value of identifiable net assets less acquisition costs less the fair value of the noncontrolling interest

A gain should be reported on an acquisition if:

The fair value of the consideration paid plus the present value of any earnings contingency is less than the fair value of the identifiable net assets acquired.

Following U.S. GAAP, a 20% noncontrolling interest in a subsidiary is reported on the consolidated balance sheet at the date of acquisition at what amount?

The fair value of the noncontrolling interest

Which statement is false concerning a bargain purchase with noncontrolling interest, at the date of acquisition?

The investment balance is reported at acquisition cost.

Which statement is false concerning the elimination entries required for intercompany sales of land from a subsidiary to its parent?

If Sub sold the land to Parent in 2013 and Parent sells the land to outsiders in 2014, no elimination entries are required in 2014

ABC Corporation issues new stock to the former shareholders of XYZ Company, in a statutory merger. If ABC must pay registration fees to issue the new stock, how is this reported by ABC?

ABC's total acquisition cost is not affected

A 60% owned subsidiary provides services to its parent during 2015. Cost of services provided is $300,000. The subsidiary charged the parent $750,000 for the services. Which statement is TRUE concerning elimination entry (I) related to these intercompany services?

Eliminating entry( I) removes the Parent's Service Expense and the Subsidiary's Service Revenue, both in the amount of $750,000. (Explanation: DR Service Revenue 750,000 CR Service Expense 750,000 To remove transaction from both books)

Parent owns 80% of Sub. Included in Sub's ending inventory is $40,000 in unconfirmed profit. Included in Sub's beginning inventory is $60,000 in unconfirmed profit. What is the effect of the above on Parent's equity method income accrual?

$20,000 Increase (Explanation: First of all, the eliminating entries to REMOVE unconfirmed profits to Ending Inventory is the SAME whether the sale was Upstream or Downstream. Unconfirmed profit is removed from the purchaser's Ending Inventory by INCREASING COGS. Unconfirmed intercompany Profits from Ending Inventory are DEDUCTED from Equity Accrual. Entry to Remove: (No effect on Sub) DR COGS 40,000 CR Inventory 40,000 Unconfirmed profits in the Ending Inventory of one period means that next period's Beginning Inventory also reflects those profits, so COGS is OVERSTATED at the next consolidation point. Working paper eliminations transfers these Gains into Current Yr.'s income by REDUCING COGS. Unconfirmed intercompany Profits from Beginnning Inventory is ADDED to the Equity Accrual. Entry to Remove: Dowstream(No effect on Sub. DR Investment in Sub 60,000 CR COGS 60,000 Simple way to solve: Difference in Ending and Beginning: $60,000(Sub's Beg. Inv) - $40,000(Sub's End. Inv.)=$20,000 ADDED to the Parent's Equity Accrual

A parent sells land to its subsidiary for $25,000, and shows a loss of $4,000. At what amount should the land be shown on the consolidated balance sheet?

$29,000 (Explanation: P $29,000-25,000=4,000 Loss on Sale, S $29,000-25,000=4,000 Bargain Purchase; Consolidated Statement shows land is valued at $29,000 and the loss and gain offset each other, leaving the fair value of the land left, $29,000.

Prolean Corporation acquired Setlan Company for $6,000,000. Setlan's book value was $2,000,000 at the date of acquisition. The $6,000,000 purchase price includes accounting and legal fees of $200,000. The book values of Setlan's assets and liabilities equaled their fair values, except for Inventory (overvalued by $15,000) and Land (undervalued by $80,000). Goodwill reported for this acquisition is:

$3,735,000

A parent sells land costing $35,000 to a subsidiary in 2014 for $55,000. The subsidiary sells the land in 2016 to a third party for $85,000. On the consolidated income statement for 2016, the GAIN on sale of land is:

$50,000. (Explanation:(SP) 85,000- (BV) 35,000=50,000 gain. 20,000 unconfirmed gain is now confirmed+ 30,000 confirmed gain)

A company acquires the assets and liabilities of another company. The fair value of the acquired company's identifiable net assets is $5,000,000. The acquisition transaction includes the following: A. $5,000,000 in cash paid to the former owners of the acquired company B.150,000 new shares of stock with a market value of $45/share. C. Registration fees, paid in cash, were $1,000,000. D. $4,000,000 in cash paid to the underwriter for consulting services. E. Earnings contingency with an expected present value of $3,000,000 at the date of acquisition Goodwill for this acquisition is:

$9,750,000

A parent provides services to a subsidiary, at a markup of 20% over cost. The subsidiary reports the cost of the services as part of its operating expenses. What elimination entry is necessary with respect to this intercompany transaction?

)I) Entry DR Sales Revenue CR Operating Expenses For the price the subsidiary PAID for the services (Explanation: If the services were proveded on Account the eliminating entries would include: (I-1) DR Accounts Payable (Total $ of Service with Markup) CR Accounts Recievable (Total $ of Service with Markup) To eliminate intercompany payables/recievables (I-2) DR Service Revenue (Total $ of Service with Markup) CR Operating Expenses (Total $ of Service with Markup) To eliminate the intercompany revenues/expenses

Company P acquires all of the stock of Company S. The consideration paid includes consulting, accounting , and legal fees, and there are previously unreported lawsuits pending against Company S. What effect will these two items have on the amount of goodwill reported on the acquisition? FEES LAWSUITS No effect Decrease Increase Decrease No effect Increase Decrease Increase

FEES-No effect LAWSUITS-Increase

Sub sold Parent land in a prior year for a Gain of $40,000. The land is still held by Parent. Parent owns 80% of Sub. The elimination entry necessary for this intercompany transaction on the current year's working paper includes:

A Debit to Retained Earnings for $40,000 (Explanation: Yr. of Sale Entry (I) DR Gain on Sale of Land 40,000 CR Land 40,000 When land is sold in an Upstream Sale(Sub to Parent) in a prior yr., you eliminate the Gain in subsequent yrs. from Beginning Retained Earnings of the Sub. Although the Gain was eliminated on the prior yr.'s working paper, it remained on Sub's books and was closed to Retained Earnings in the yr. of the sale.)

Parent sold Sub land in a prior year for a gain of $40,000. The land is still held by Sub. Parent owns 80% of Sub. The elimination entry necessary for this intercompany transaction on the current year's worksheet includes:

A Debit to the Investment Account for $40,000 (Explanation: Yr. of Sale Entry (I) DR Gain on Sale of Land 40,000 CR Land 40,000 To reduce the Land to the Original Cost Subsequent Yr, Entry (I) DR Inv. in Sub 40,000 CR Land 40,000 To reduce the Land to Original Acquis. Cost

Parent has unconfirmed profits in its beginning inventory. The working paper elimination for these profits will include:

A credit to cost of goods sold

ASC Topic 810 requires the noncontrolling interest in net income to be reported on the consolidated income statement as:

A distribution of consolidated net income

Noncontrolling interest is reported on the consolidated financial statements as:

A distribution of consolidated net income on the consolidated income statement

On the consolidated statement of cash flows, where should dividends paid to noncontrolling shareholders appear?

Financing activities section

Which one of the following accounts of an acquired company will not appear on a consolidated balance sheet?

Additional paid-in capital

Assume a parent acquires 75% of the stock of a subsidiary, in an acquisition in which goodwill is reported. If goodwill is not impaired, on the consolidated income statement the noncontrolling interest in net income as measured by U.S. GAAP is:

Always the same as noncontrolling interest in net income as measured using IFRS

Noncontrolling interest is reported on the consolidated balance sheet as:

An equity

Noncontrolling interest is reported on the consolidated financial statements as:

An equity on the consolidated balance sheet

Goodwill impairment losses, if significant, must be reported on a company's income statement

As a separate line item in operating expenses

Sub sold Parent some land at a profit in 2004. Parent still holds the land. On a work paper prepared to consolidate the financial statements of a parent and a subsidiary in 2012, the elimination entry connected with this land affects which account?

Beginning Retained Earnings (Explanation: If land is sold upstream in a prior yr. you eliminate the unconfirmed profits(meaning the parent still owns the land) from the Beginning Retained Earnings of the Sub. Although you eliminated the profit on the prior period working paper, it remained intact on the Sub's books and was closed to Retained Earnings in the yr. of the sale.)

At the beginning of 2012, a subsidiary sells equipment with a book value of $400,000 to its parent for $500,000. At the time of the sale, the equipment had a remaining life of 5 years, straight-line. The parent still has the equipment at the end of 2013 (2 years later). On the consolidated financial statements for 2013, how is the equipment reported?

Book value $240,000, Depreciation expense $80,000

All of the following are examples of reportable identifiable intangible assets acquired in a business combination, except:

Business reputation

Company A has unreported intangible assets that are very valuable. Which one of the following actions will allow these intangible assets to be reported?

Find a company to combine with, and designate Company A as the company being acquired.

A parent acquired all of the stock of a subsidiary. The subsidiary had originally issued long-term debt when the market rate of interest was 5%. The market rate if interest for the debt at the date of acquisition is 3%. How does the change in market interest rates affect the consolidated financial statements?

Future interest expense is lower

According to U.S. GAAP, when should the financial information of Company A and Company B be consolidated on one balance sheet?

Company A controls the decisions made by Company B's managers

A subsidiary sells merchandise to its parent at a markup of 25% on cost. In 2014, the parent paid $750,000 for merchandise received from the subsidiary. By year-end 2014, the parent has sold $500,000 of the merchandise to outside customers for $800,000, but still holds the other $250,000 in its ending inventory. Which statement is FALSE concerning the information reported on the 2014 consolidated financial statements?

Consolidated Cost of Goods Sold is $500,000 (Explanation: COGS 500,000/1.25=400,000-Is the correct amount on the consolidated books)

Parent's beginning and ending inventories contain unconfirmed profits on goods purchased from Sub of $75,000 and $90,000, respectively. Sub's beginning and ending inventories contain unconfirmed profits on goods purchased from Parent of $120,000 and $100,000, respectively. Parent owns 80% of Sub. What is the effect on consolidated net income and the noncontrolling interest in net income?

Consolidated net income increases $5,000; noncontrolling interest in net income decreases $3,000

Which statement is true concerning the consolidated statement of cash flows?

In determining cash from operating activities using the indirect method, goodwill impairment charges are added to consolidated net income.

As compared with past practice, SFAS 160 requirements for displaying noncontrolling interests in the consolidated income statement:

Increase consolidated net income

On the consolidated statement of cash flows, cash received from intercompany sales between the parent and subsidiary are:

Not reported

Which account balance is always reported at the same amount on the parent's balance sheet and on the consolidated balance sheet of the parent and its subsidiary?

Accumulated other comprehensive income

A parent owns less than 100% of the voting stock of its subsidiary. On its consolidated income statement, earnings per share is calculated using which of the following amounts in the numerator?

Consolidated net income less noncontrolling interest in net income

X Company has no equity ownership in Y Company, but is its primary beneficiary. X and Y were previously under common control. Which statement is true at the date X becomes Y's primary beneficiary?

Consolidated noncontrolling interest equals the book value of Y's net assets.

X Company has no equity ownership in Y Company, but is its primary beneficiary. X and Y were not previously under common control. Which statement is true at the date X becomes Y's primary beneficiary?

Consolidated noncontrolling interest equals the fair value of Y's net assets.

A subsidiary sells merchandise to its parent at a markup of 25% on cost. In 2013, the parent paid $500,000 for merchandise received from the subsidiary. By year-end 2013, the parent has sold $400,000 of the merchandise to outside customers for $450,000, but still holds the other $100,000 in its ending inventory. Which statement is true concerning the information reported on the 2013 consolidated financial statements?

Consolidated sales should be $450,000 (Explanation: Since you eliminate the intercompany sales, the consolidated papers only shows what the Parent had in sales in this case. Another true statement would be Consolidated Ending Inventory Balance $80,000 (100,000/1.25))

What is the major reason why a company may avoid consolidating another company?

Consolidation increases leverage

Following U.S. GAAP, a company consolidates its majority-owned subsidiary unless:

Control is temporary

On January 1, 2014, the parent sold new equipment for which it paid $600,000 to the subsidiary for $1,000,000. The plant assets had a remaining life of 10 years at that time, straight-line. The subsidiary still has the equipment at year-end. On the consolidation working paper, the net effect of eliminations (I) will be a

Credit Depreciation Expense for $40,000. (Explanation: 400,000/10=40,000- DR Acc. Dep. 40,000 CR Dep. Exp. 40,000)

A parent provided services to its subsidiary in 2014, at a cost to the parent of $300,000. The parent charged the subsidiary $325,000 for the services. On the 2014 consolidated income statement, what should be reported with respect to this information?

Only service expense, $300,000

A parent loans $100,000 to its subsidiary during 2014, at an annual interest rate of 4%. The subsidiary has not paid the interest at year-end. On the consolidation working paper, eliminating entries include all BUT which one of the following?

Credit Interest Payable $4,000. (Explanation: 100,000x.04=4,000 Interest Expense (I-1) DR Loan Pay 100,000 CR Loan Rec. 100,000 (I-2) DR Int. Pay. 4,000 CR Int. Rec. 4,000 (I-3) DR Int. Rev. 4,000 CR Int. Exp. 4,000)

Pluto Corporation purchased Saturn Corporation's assets and liabilities for $15,000,000. Saturn's assets and liabilities consist of the following: Fair Value Dr (Cr) Book Value Dr (Cr) Cash, receivables $ 6,000,000 $ 5,000,000 Inventory 9,000,000 8,000,000 Equipment 65,000,000 60,000,000 Liabilities (63,000,000) (63,000,000) The gain on acquisition is:

$2,000,000

A parent company sells equipment to its subsidiary on January 1, 2012 for $100,000. At the time, the equipment was reported on the parent's books at an original cost of $85,000 and accumulated depreciation of $25,000. The remaining life of the equipment as of January 1, 2012 is six years, and straight-line depreciation, no residual value is used. At what net value should this equipment be reported on a December 31, 2013 consolidated balance sheet?

$40,000 (Explanation: Original Cost for Parent $85,000-25,000(acc. dep.)= $60,000 Depreciation is based on Original cost for Parent because they are consolidating the financial statements, which is $60,000/6 yr life remaining=$10,000 yr.; $10,000x2=$20,000; $60,000-$20,000=$40,000

A parent provides administrative services to its subsidiary during 2014, which the subsidiary records as an expense. The services cost the parent $100,000 and the subsidiary was charged $125,000. On the consolidation workpaper, what elimination entry is necessary?

DR Service Revenue $125,000; CR Service Expense $125,000

Company Y is purchased by Company X, and the purchase price is $2,500,000 greater than the fair values of the identifiable net assets acquired. One of the assets acquired is a building, originally valued at $1,000,000 at the date of the purchase. Six months after the acquisition, it is discovered that the building was really only worth $200,000 at the date of acquisition. What entry is made to reflect this new information?

DR. Goodwill $800,000; CR. Building for $800,000

A parent sells merchandise to a subsidiary at a markup over its cost. The subsidiary has sold all of this merchandise by year-end. Which of the following worksheet elimination entries are needed to consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise?

DR. Sales; CR. COGS for the sales value of the merchandise sold by the parent

On January 2, 2011 a parent sells a building with original cost of $400,000 and accumulated depreciation of $100,000 to a subsidiary for $250,000. The estimated remaining life of the building is 5 years, and straight-line depreciation is appropriate. On December 31, 2013 the subsidiary sells the building to an outside party for $275,000. The parent owns 80% of the subsidiary. Working paper eliminations for 2013 will have what effect on consolidated net income?

Decrease $30,000

Parent owns 80% of Sub. Included in Sub's ending inventory is $20,000 in unconfirmed profit. Included in Parent's ending inventory is $30,000 in unconfirmed profit. What is the effect of the above on the noncontrolling interest in net income?

Decrease of $6,000 (Explanation: $30,000x20%(NCI)=$6,000)

On consolidated financial statements, where does the parent's equity in the net income of the subsidiary account appear?

Doesn't appear on the consolidated financial statements.

On consolidated financial statements, where does the subsidiary's accumulated other comprehensive income balance appear?

Doesn't appear on the consolidated financial statements.

Which one of the following balances appears on consolidated financial statements?

Plant assets, reported on the subsidiary's books

In 2009, the FASB changed the reporting for out-of-pocket costs of outside merger and acquisition advisory services. This change, as compared with previous GAAP,

Reduces reported goodwill

When consolidating the balance sheet of a parent and its subsidiary at the date of acquisition, consolidation eliminating entries:

Remove the full balance of the parent's investment account and the subsidiary's equity accounts, and adjust the subsidiary's assets and liabilities to fair value at the date of acquisition.

A parent owns 90% of a subsidiary. The parent provides marketing services to the subsidiary during 2014. The parent charged the subsidiary $1,000,000 for the services. The services cost the parent $700,000. Which statement is TRUE concerning the consolidation elimination entry or entries related to the intercompany services?

Service revenue is reduced by $1,000,000 in elimination I. (Explanation: DR Service Revenue 1,000,000 CR Service Expense 1,000,000 To remove the transaction from both books)

What is the preferred way to value the noncontrolling interest in a subsidiary at the date of acquisition, per U.S. GAAP?

The stock price per share in an active market

ABC acquires 49.99% of the voting stock of XYZ. From the viewpoint of readers of the financial statements, the most important factor ABC should consider when deciding whether or not to consolidate XYZ on its financial statements is

Whether ABC controls the performance of XYZ

How did the FASB's ASU on goodwill impairment testing, effective in 2012, change the calculation of goodwill impairment losses?

You don't have to do the goodwill impairment test if it is more likely than not that the reporting unit's fair value is greater than its book value.

A parent acquires 80% of the stock of its subsidiary. Following U.S. GAAP, on the consolidated balance sheet less than 20% of the total goodwill will likely be allocated to the noncontrolling interest because:

The parent usually pays a higher price per share because it acquires a controlling interest

Parent owns 80% of Sub. Two years ago, Sub sold land to Parent and recorded a gain of $50,000. During this year, Parent sold the land to an outside company and recognized a gain of $30,000. How do these events affect consolidated net income for the current year?

Increase of $80,000

Peters Corporation acquires all of the voting shares of Stefan Company by issuing 500,000 shares of $1 par common stock valued at $10,000,000. Included in the agreement is a contingency guaranteeing the former shareholders of Stefan that Peters' shares will be worth at least $18 per share after one year. If the shares are worth less, Peters will pay the former shareholders of Stefan enough cash to reimburse them for the decline in value below $18 per share. Peters estimates that there is a 5% chance that the stock value will be $16 at the end of one year, and a 95% chance that the stock value will be $18 per share or higher. A discount rate of 10% is appropriate. What is the value of the stock price contingency at the date of acquisition?

$45,455

On January 1, 2014, the parent sold equipment with book value of $600,000 to the subsidiary for $1,000,000. The plant assets had a remaining life of 10 years at that time, straight-line. The subsidiary still has the equipment at year-end. How should the equipment (net of accumulated depreciation) be reported on the consolidated balance sheet at December 31, 2014?

$540,000

ABC Corporation acquires all of the assets and liabilities of XYZ Company in a statutory merger. If ABC offers the former shareholders of XYZ an earnings contingency, what is the likely result of having this contingency, on ABC's balance sheet?

ABC will report more goodwill

Goodwill acquired in a merger must be allocated to business units before it can be tested for impairment. How are these "business units" defined?

The business units are the reportable units used for segment reporting

Where is the noncontrolling interest in consolidated net income reported?

On the consolidated income statement as a distribution of consolidated net income.

On January 1, 2010, Sub sold Parent equipment for $300,000. Sub's original cost was $400,000 and as of January 1, 2010, $160,000 in depreciation had been recorded on Sub's books. At the date of sale, the equipment had a 5-year remaining life, straight-line. It is now December 31, 2012 (3 years since the sale), and Parent still holds the equipment. How should this equipment be reported on the consolidated balance sheet and income statement? Equipment (cost) Accum depr-equipment Depreciation expense

Equip.$400,000; Acc. Dep.$304,000; Dep. Exp.$48,000 (Explanation: Date of Sale: $400,000(orig. cost) -$160,000( total acc. dep. on Parent's books) = $240,000(BV-Parent's books) Depreciation is then calculated by BV/Remaining life at date of sale: $240,000/5=$48,000 yrly. dep.

Parent owns 80% of Sub. At the beginning of 2012, Sub sells new equipment carried on its books at $40,000 to Parent for $65,000. The equipment has a 5-year remaining life at the time of sale, and straight-line depreciation is appropriate. It is now the end of 2012. Parent and Sub report the following balances related to the equipment: Parent-Equipment $65,000; Accumulated depreciation 13,000 Sub-Gain on sale of equipment $25,000 What should be reported on the consolidated statements for 2012, with respect to this equipment?

Equipment, $40,000; Accumulated depreciation, $8,000; Gain, $0

GM forms a separate legal entity, funded mostly by debt. The entity acquires a building and leases it to GM. GM guarantees the residual value of the building, and reports the lease as an operating lease. If GM does not consolidate the entity, which effect does NOT occur?

GM's retained earnings are understated

Which statement is TRUE concerning the eliminating entries required for intercompany sales of land from a subsidiary to its parent?

If the subsidiary sold the land to its parent in 2012, and the land was sold to outsiders by the parent in 2012, no eliminating entries are required in 2012 (Explanation: Confirmed Profits DO NOT Require Eliminating Entries. That said: If Sub sold Land to Parent for $10,000, say with a $1,000 Gain, then the Parent sold Land to Outside Party for $11,000 with a $1,000 Gain, At year end the consildated income statement would show Land sold and any Gain or Loss would go on the Income Statement. Journal Entry Sub: DR Cash 10,000 CR Gain 1,000 CR Land 9,000 Journal Entry Parent: DR Cash 11,000 CR Gain 1,000 CR Land 10,000 Consolidated IncomeStatement Other Gains/Losses: Gain on Sale of Land 2,000)

A parent company sells land to its subsidiary in 2012 at an amount above its original cost. In 2015, three years later, the subsidiary sells the land to an outside developer. In the 2015 consolidation working paper, the elimination of this transaction will result in a(n):

Increase in Gain on Sale (Explanation: Parent Sells to Sub 1/1/12 for say $25,000, Cost of Land originally by Parent is 15,000, so $10,000 Parent has Gain, which is eliminated by: (I) Gain on Sale Land 10,000 Land 10,000 3 yrs. later Land is sold: DR Cash 20,000 CR Gain 5,000 CR Land 15,000 Income Statement Other Gains/Losses Sale of Land 5,000

Parent owns 75% of the outstanding voting stock of Sub. During 2013, Parent sold inventory priced at $1,000,000 to Sub, and Parent's profits on these sales amounted to $50,000. All inventory sold by Parent to Sub was sold by Sub to outside customers during 2013. Here is what Parent and Sub report for total sales, cost of goods sold, and ending inventory at December 31, 2013 (for total sales between Parent and Sub and to outside customers). Parent's books-Inventory $300,000 Sales revenue $5,000,000 COGS $4,000,000 Sub's Books-Inventory $150,000 Sale Revenue $3,500,000 COGS $2,700,000. At what amounts should the 2013 consolidated financial statements report these three balances? Inventory, Sales revenue, & Cost of goods sold

Inventory-$450,000 Sales Revenue-$7,500,000 COGS-$5,700,000

Parent sold Sub some land at a gain in 2012. Sub still holds the land. On a work paper prepared to consolidate the financial statements of a parent and a subsidiary in 2014, the elimination entry connected with this land includes a debit to:

Investment in S, because the gain reduced the Investment account in 2012

On a worksheet prepared to consolidate the financial statements of a parent and subsidiary, elimination entries made to remove intercompany Gains on downstream sales of land sold in prior years will affect which account?

Investment in Subsidiary (Explanation: Yr. of Sale Elimination Entry (I) DR Gain on Sale of Land 20,000 CR Land 20,000 Yr. 2 on, as long as Parent still has Land (I) DR Inv. in Sub 20,000 CR Land 20,000 When Downstream Sales occur, in subsequent yrs. you ADD the unconfirmed Gain to the Investment Account.

When doing a consolidation worksheet, the elimination entry for a prior year intercompany transfer of land includes a Debit to the subsidiary's retained earnings when the transfer:

Is an upstream sale and the transfer was made at a gain. (Explanation:Date of Sale 1/1/12-Upstream Sale of Land with $40,000 gain/4 remaining yrs. life-Eliminating entries are: (I) Gain on Sale of Land 40,000 Land 40,000 Eliminating Entries for 12/31/12-12-31-15-Until Gain is written off(If Parent holds Land for the entire time) (I) Retained Earnings-Sub 10,000 Land 10,000

A parent sold land costing $1,000,000 to its subsidiary for $1,200,000 in 2012. The subsidiary still holds the land at the end of 2014. On a working paper prepared to consolidate the financial statements of the parent and subsidiary in 2014, the eliminating entry connected with this land includes a credit to:

Land, to restore the land to its original cost (Explanation: DR Gain on sale 200,000 CR Land 200,000 Which restores it to the original cost of 2,000,000)

A parent owns 85% of a subsidiary's voting stock, in an acquisition accounted for as a bargain purchase. The subsidiary had previously unreported identifiable intangible assets valued at $10,000,000 on the date of acquisition. Which statement is true concerning consolidation eliminations at the date of acquisition?

Less than 15% of the previously unreported identifiable intangible assets are attributed to the noncontrolling interest.

A 80%-owned subsidiary provides services to its parent during 2013. Cost of services provided is $200,000. The subsidiary charged the parent $450,000 for the services. Which statement is true concerning the information that should appear on the 2013 consolidated income statement?

No service revenue is reported

Parent owns 75% of the outstanding common stock of Sub. During 2014, Parent's profits on its inventory sales to Sub amounted to $50,000. All merchandise purchased by Sub was then sold to outside customers. The consolidation elimination for intercompany profit on the transaction is:

Not necessary

A subsidiary sells merchandise to its parent at a markup of 30% on cost. In 2014, the parent paid $1,040,000 for merchandise received from the subsidiary. By year-end 2014, the parent has sold $780,000 of the merchandise to outside customers for $850,000, but still holds the other $260,000 in its ending inventory. Which statement is TRUE concerning the information reported on the 2014 consolidated financial statements?

The consolidated Ending Inventory balance should be $200,000. (Explanation: 260,000/1.2=200,000-the amount that is shown on consolidated statements until all inventory is sold to outside party)

A parent company sells merchandise to a subsidiary company during 2015 at a price of $1,000,000. The subsidiary company sells all the merchandise to outside customers during 2015 for $1,250,000. The parent always sells to the subsidiary at a markup of 25% on cost. Which statement is TRUE concerning the required consolidation eliminating entries related to these transactions?

The eliminating entries will include a reduction in sales revenue to remove intercompany sales. (Explanation: DR Sales 1,000,000 CR COGS 1,000,000)

Which statement is true concerning valuation of noncontrolling interests at the date of acquisition per U.S. GAAP?

The main difference in per-share value between the controlling and noncontrolling interest is a control premium for the acquirer's interest.

On January 1, 2011, Sub sold an asset to Parent for $175,000. Sub's books showed original cost and accumulated depreciation of $260,000 and $160,000, respectively, at the date of sale. The asset had a remaining life of five years, and is being depreciated by the straight-line method. Parent owns 80% of Sub. On December 31, 2012 (two years after the sale):

The noncontrolling interest in net income is increased by $3,000

An acquirer buys 75% of the stock of a target company for a price well in excess of the target's book value. The target company's assets and liabilities are determined to be fairly reported on the target company's books, and it does not have any previously unrecorded intangibles. The acquirer is a non-U.S. company that reports using IFRS. It uses the alternative valuation method for noncontrolling interests that is not allowed under U.S. GAAP. Which statement is true?

The noncontrolling interest is initially reported at 25% of the target company's book value.

During 2014, a parent sells merchandise to its subsidiary at a 20% markup on cost. The subsidiary has sold all this merchandise to customers by the end of the year. An elimination entry in step (I) is required to consolidate the 2014 financial statements of the parent and the subsidiary because:

The parent's sales revenue is overstated

If the parent uses the complete equity method when accounting for its wholly-owned subsidiary on its own books,

The parent's separately reported income equals consolidated income.