Advanced Accounting chapter 6-7

A parent company regularly sells merchandise to its 80%-owned subsidiary. Which of the following statements describes the computation of noncontrolling interest income? a) the subsidiary's net income times 20%. b) (the subsidiary's net income x 20%) + unrealized profits in the beginning inventory - unrealized profits in the ending inventory. c) (the subsidiary's net income + unrealized profits in the beginning inventory - unrealized profits in the ending inventory) × 20%. d) (the subsidiary's net income + unrealized profits in the ending inventory - unrealized profits in the beginning inventory) × 20%.

A

In 2017, P Company sells land to its 80% owned subsidiary, S Company, at a gain of $50,000. What is the effect of this sale of land on consolidated net income assuming S Company still owns the land at the end of the year? a) consolidated net income will be the same as if the sale had not occurred. b) consolidated net income will be $50,000 less than it would had the sale not occurred. c) consolidated net income will be $40,000 less than it would had the sale not occurred. d) consolidated net income will be $50,000 greater than it would had the sale not occurred.

A

In years subsequent to the upstream intercompany sale of nondepreciable assets, the necessary consolidated workpaper entry under the cost method is to debit the: a) Noncontrolling interest and Retained Earnings (Parent) accounts, and credit the nondepreciable asset. b) Retained Earnings (Parent) account and credit the nondepreciable asset. c) Nondepreciable asset, and credit the Noncontrolling interest and Investment in Subsidiary accounts. d) No entries are necessary.

A

P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 2016, P sold merchandise that cost $240,000 to S for $300,000. Half of this merchandise remained in S's December 31, 2016 inventory. During 2017, P sold merchandise that cost $375,000 to S for $468,000. Forty percent of this merchandise inventory remained in S's December 31, 2017 inventory. Selected income statement information for the two affiliates for the year 2017 is as follows: P S Sales Revenue $2,250,000 . $1,125,000 Cost of Goods Sold $1,800,000 . $937,500 Gross profit $450,000 $187,500 Consolidated sales revenue for P and Subsidiary for 2017 are: a) $2,907,000. b) $3,000,000. c) $3,205,500. d) $3,375,000.

A

The amount of the adjustment to the noncontrolling interest in consolidated net assets is equal to the noncontrolling interest's percentage of the: a) unrealized intercompany gain at the beginning of the period. b) unrealized intercompany gain at the end of the period. c) realized intercompany gain at the beginning of the period. d) realized inter-company gain at the end of the period.

A

The noncontrolling interest's share of the selling affiliate's profit on intercompany sales is considered to be realized under: a) partial elimination. b) total elimination. c) 100% elimination. d) both total and 100% elimination.

A

Gain or loss resulting from an intercompany sale of equipment between a parent and a subsidiary is: a) recognized in the consolidated statements in the year of the sale. b) considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidated statements. c) considered to be unrealized in the consolidated statements until the equipment is sold to a third party. d) amortized over a period not less than 2 years and not greater than 40 years.

B

In January 2013, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000. S Company's original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2017 for $1,440,000. What amount of gain should P Company record on its books in 2017? a) $60,000. b) $120,000. c) $240,000. d) $360,000.

B

In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should: a) not be eliminated. b) be eliminated in full. c) be eliminated to the extent of the parent company's controlling interest in the subsidiary. d) be eliminated to the extent of the noncontrolling interest in the subsidiary.

B

Noncontrolling interest in consolidated income is never affected by: a) upstream sales. b) downstream sales. c) horizontal sales. d) Noncontrolling interest is affected by all sales.

B

P Corp. owns 90% of the outstanding common stock of S Company. On December 31, 2017, S sold equipment to P for an amount greater than the equipment's book value but less than its original cost. The equipment should be reported on the December 31, 2017 consolidated balance sheet at: a) P's original cost less 90% of S's recorded gain. b) P's original cost less S's recorded gain. c) S's original cost. d) P's original cost.

B

Petunia Company owns 100% of Sage Corporation. On January 1, 2017 Petunia sold equipment to Sage at a gain. Petunia had owned the equipment for four years and used a ten-year straight-line rate with no residual value. Sage is using an eight-year straight-line rate with no residual value. In the consolidated income statement, Sage's recorded depreciation expense on the equipment for 2017 will be reduced by: a) 10% of the gain on sale. b) 12 1/2% of the gain on sale. c) 80% of the gain on sale. d) 100% of the gain on sale.

B

Several years ago, P Company bought land from S Company, its 80% owned subsidiary, at a gain of $50,000 to S Company. The land is still owned by P Company. The consolidated working papers for this year will require: a) no entry because the gain happened prior to this year. b) a credit to land for $50,000. c) a debit to P's retained earnings for $50,000. d) a debit to Noncontrolling interest for $50,000.

B

4) Pruitt Company owns 80% of Stoney Company's common stock. During 2017, Stoney sold $400,000 of merchandise to Pruitt. At December 31, 2017, one-fourth of the merchandise remained in Pruitt's inventory. In 2017, gross profit percentages were 25% for Pruitt and 30% for Stoney. The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is: a) $80,000. b) $24,000. c) $30,000. d) $25,000.

C

Failure to eliminate intercompany sales would result in an overstatement of consolidated: a) net income. b) gross profit. c) cost of sales. d) all of these.

C

In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made debiting: a) Retained Earnings - P Company b) Retained Earnings - S Company c) Gain on Sale of Land d) both Retained Earnings - P Company and Retained Earnings - S Company

C

In the year an 80% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is calculated by multiplying the noncontrolling interest percentage by the subsidiary's reported net income: a) plus the intercompany gain considered realized in the current period. b) plus the net amount of unrealized gain on the intercompany sale. c) minus the net amount of unrealized gain on the intercompany sale. d) minus the inter-company gain considered realized in the current period.

C

P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At the end of the current year, one-third of the merchandise remains in S Company's inventory. Applying the lower-of- cost-or-market rule, S Company wrote this inventory down to $92,000. What amount of intercompany profit should be eliminated on the consolidated statements workpaper? a) $20,000. b) $18,000. c) $12,000. d) $10,800.

C

P Corporation acquired a 60% interest in S Corporation on January 1, 2017, at book value equal to fair value. During 2017, P sold merchandise that cost $135,000 to S for $189,000. One-third of this merchandise remained in S's inventory at December 31, 2017. S reported net income of $120,000 for 2017. P's income from S for 2017 is: a) $36,000. b) $50,400. c) $54,000. d) $61,200.

C

The material sale of inventory items by a parent company to an affiliated company: a) enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining. b) affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. c) does not result in consolidated income until the merchandise is sold to outside parties. d) does not require a working paper adjustment if the merchandise was transferred at cost.

C

The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiary's reported net income: a) plus unrealized profit in ending inventory less unrealized profit in beginning inventory. b) plus realized profit in ending inventory less realized profit in beginning inventory. c) less unrealized profit in ending inventory plus realized profit in beginning inventory. d) less realized profit in ending inventory plus realized profit in beginning inventory.

C

The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a: a) credit to Ending Inventory (Cost of Sales). b) credit to Sales. c) debit to Ending Inventory (Cost of Sales). d) debit to Inventory - Balance Sheet.

C

When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when the selling affiliate is: a) the parent and the subsidiary is less than wholly owned. b) a wholly owned subsidiary. c) the subsidiary and the subsidiary is less than wholly owned. d) the parent of a wholly owned subsidiary.

C

A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2016. Under the partial equity method, the workpaper entry in 2017 to recognize the intercompany profit in beginning inventory realized during 2017 includes a debit to: a) Retained Earnings - P. b) Noncontrolling interest. c) Cost of Sales. d) both Retained Earnings - P and Noncontrolling Interest.

D

Company S sells equipment to its parent company (P) at a gain. In years subsequent to the year of the intercompany sale, a workpaper entry is made under the cost method debiting: a) Retained Earnings - P. b) Noncontrolling interest. c) Equipment. d) all of these.

D

In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is computed by multiplying the noncontrolling interest percentage by the subsidiary's reported net income: a) minus the net amount of unrealized gain on the intercompany sale. b) plus the net amount of unrealized gain on the intercompany sale. c) minus intercompany gain considered realized in the current period. d) plus inter-company gain considered realized in the current period.

D

On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2017? a) no effect b) increase of $12,000. c) decrease of $12,000. d) increase of $3,000.

D

Petunia Company acquired an 80% interest in Shaman Company in 2016. In 2017 and 2018, Shaman reported net income of $400,000 and $480,000, respectively. During 2017, Shaman sold $80,000 of merchandise to Petunia for a $20,000 profit. Petunia sold the merchandise to outsiders during 2018 for $140,000. For consolidation purposes, what is the noncontrolling interest's share of Shaman's 2017 and 2018 net income? a) $90,000 and $96,000. b) $100,000 and $76,000. c) $84,000 and $92,000. d) $76,000 and $100,000.

D

Petunia Corporation owns 100% of Stone Company's common stock. On January 1, 2017, Petunia sold equipment with a book value of $210,000 to Stone for $300,000. Stone is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2017 and 2018 consolidated income would be an increase (decrease) of: a) 2017, ($90,000); 2018, $0 b) 2017, ($90,000); 2018, $9,000 c) 2017, ($81,000); 2018, $0 d) 2017, ($81,000); 2018, $9,000

D

Sales from one subsidiary to another are called: a) downstream sales. b) upstream sales. c) intersubsidiary sales. d) horizontal sales.

D