Advanced Accounting Chapters 5-7 Questions

Middle Company holds 60 percent of Bottom Corporation's voting shares. Bottom has developed a new type of production equipment that appears to be quite marketable. It spent $ 40,000 in developing the equipment; however, Middle agreed to purchase the production rights for the machine for $ 100,000. If the intercompany sale occurred on January 1, 20X2, and the production rights are expected to have value for five years, at what amount should the rights be reported in the consolidated balance sheet for December 31, 20X2? Multiple Choice $ 80,000 $ 32,000 $ 100,000 $ 0

$ 0

On January 1, 20X0, Poe Corporation sold a machine for $ 900,000 to Saxe Corporation, its wholly owned subsidiary. Poe paid $ 1,100,000 for this machine, which had accumulated depreciation of $ 250,000. Poe estimated a $ 100,000 salvage value and depreciated the machine using the straight-line method over 20 years, a policy that Saxe continued. In Poe's December 31, 20X0, consolidated balance sheet, this machine should be included in fixed-asset cost and accumulated depreciation as CostAccumulated Depreciation $ 1,100,000$ 300,000 $ 1,100,000$ 290,000 $ 900,000$ 40,000 $ 850,000$ 42,500

$ 1,100,000$ 300,000

Select the correct answer for each of the following questions. On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold sold the computer to TLK Corporation and recorded the following entry: Consolidation Worksheet EntriesDebitCreditCash39,000 Accumulated Depreciation16,000 Computer Equipment 40,000Gain on Sale of Equipment 15,000 TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of $ 45,000 including the gain on the sale of equipment, and TLK reported income from its own operations of $ 85,000 for 20X6. There is no change in the estimated economic life of the equipment as a result of the intercompany transfer. Consolidated net income for 20X6 will be Multiple Choice $ 130,000. $ 120,000. $ 106,000. $ 112,000.

$ 120,000.

On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold sold the computer to TLK Corporation and recorded the following entry: Consolidation Worksheet EntriesDebitCreditCash39,000 Accumulated Depreciation16,000 Computer Equipment 40,000Gain on Sale of Equipment 15,000 TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of $ 45,000 including the gain on the sale of equipment, and TLK reported income from its own operations of $ 85,000 for 20X6. There is no change in the estimated economic life of the equipment as a result of the intercompany transfer. Income assigned to the noncontrolling interest in the 20X6 consolidated income statement will be Multiple Choice $ 52,000. $ 12,000. $ 14,000. $ 18,000.

$ 14,000.

On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, 20X8, consolidated balance sheet, the amount of noncontrolling interest reported should be Multiple Choice $252,000. $239,000. $251,000. $200,000.

$251,000.

What amount of consolidated net income will be assigned to the controlling shareholders for 20X2? $39,000 $13,000 $26,000 $28,600

$28,600

Clark Company had the following transactions with affiliated parties during 20X2: Sales of $60,000 to Dean Incorporated, with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15 percent interest in Dean and does not exert significant influence. Purchases of raw materials totaling $240,000 from Kent Corporation, a wholly owned subsidiary. Kent's gross profit on the sales was $48,000. Clark had $60,000 of this inventory remaining on December 31, 20X2. Before consolidation entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31, 20X2, consolidated balance sheet for current assets? $303,000 $317,000 $320,000 $308,000

$308,000

Scroll Incorporated, a wholly owned subsidiary of Pirn Incorporated, began operations on January 1, 20X1. The following information is from the condensed 20X1 income statements of Pirn and Scroll: PirnScrollSales$ 500,000$ 300,000Cost of Goods Sold(350,000)(270,000)Gross Profit$ 150,000$ 30,000Depreciation(40,000)(10,000)Other Expenses(60,000)(15,000)Income from Operations$ 50,000$ 5,000Gain on Sale of Equipment to Scroll12,000 Income before Taxes$ 62,000$ 5,000 Scroll purchased equipment from Pirn for $ 36,000 on January 1, 20X1, that is depreciated using the straight-line method over four years. What amount should be reported as depreciation expense in Pirn's 20X1 consolidated income statement? Multiple Choice $47,000 $44,000 $50,000 $41,000

$47,000

What amount of cost of goods sold will be reported in the 20X2 consolidated income statement? $36,000 $60,000 $47,000 $107,000

$47,000

Selected data for two subsidiaries of Dunn Corporation taken from the December 31, 20X8, preclosing trial balances are as follows: Banks Company (Debits)Lamm Company (Credits)Shipments to Banks $ 150,000Shipments from Lamm$ 200,000 Intercompany Inventory Profit on Total Shipments 50,000 Additional data relating to the December 31, 20X8, inventory are as follows: Inventory acquired by Banks from outside parties $ 175,000Inventory acquired by Lamm from outside parties250,000Inventory acquired by Banks from Lamm60,000 At December 31, 20X8, the inventory reported on the combined balance sheet of the two subsidiaries should be: $425,000 .$435,000. $485,000. $470,000.

$470,000.

Parker Corporation owns 80 percent of Smith Incorporated's common stock. During 20X1, Parker sold inventory to Smith for $250,000 on the same terms as sales made to third parties. Smith sold all of the inventory purchased from Parker in 20X1. The following information pertains to Smith's and Parker's sales for 20X1: ParkerSmithSales$ 1,000,000$ 700,000Cost of Sales(400,000)(350,000)Gross Profit$ 600,000$ 350,000 What amount should Parker report as cost of sales in its 20X1 consolidated income statement? $430,000 $680,000 $500,000 $750,000

$500,000

Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb Corporation. Twill purchases merchandise inventory from Webb at 140 percent of Webb's cost. During 20X0, Webb sold to Twill merchandise that had cost it $40,000. Twill sold all of this merchandise to unrelated customers for $81,200 during 20X0. In preparing combined financial statements for 20X0, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. By what amount was unadjusted revenue overstated in the combined income statement for 20X0? $81,200 $56,000 $40,000 $16,000

$56,000

Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb Corporation. Twill purchases merchandise inventory from Webb at 140 percent of Webb's cost. During 20X0, Webb sold to Twill merchandise that had cost it $40,000. Twill sold all of this merchandise to unrelated customers for $81,200 during 20X0. In preparing combined financial statements for 20X0, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. What amount should be eliminated from cost of goods sold in the combined income statement for 20X0? $16,000 $24,000 $40,000 $56,000

$56,000

On January 1, 20X5, Post Company acquired an 80 percent investment in Stake Company. The acquisition cost was equal to Post's equity in Stake's net assets at that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and $100,000, respectively. During 20X5, Post had net income of $200,000, which included its equity in Stake's earnings, and declared dividends of $50,000; Stake had net income of $40,000 and declared dividends of $20,000. There were no other intercompany transactions between the parent and subsidiary. On December 31, 20X5, what should the consolidated retained earnings be? Multiple Choice $766,000 $650,000 $666,000 $770,000

$650,000

What amount of sales will be reported in the 20X2 consolidated income statement? $146,000 $86,000 $60,000 $51,600

$86,000

On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, 20X8, consolidated balance sheet, the amount of goodwill reported should be Multiple Choice $156,000. $95,000. $76,000. $0.

$95,000.

Port Incorporated owns 100 percent of Salem Incorporated On January 1, 20X2, Port sold delivery equipment to Salem at a gain. Port had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Salem is using a three-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem's recorded depreciation expense on the equipment for 20X2 will be decreased by Multiple Choice 50 percent of the gain on the sale. 100 percent of the gain on the sale. 20 percent of the gain on the sale. 33 1/3 percent of the gain on the sale.

33 1/3 percent of the gain on the sale.

Minor Company sold land to Major Company on November 15, 20X4, and recorded a gain of $ 30,000 on the sale. Major owns 80 percent of Minor's common shares. Which of the following statements is correct? A proportionate share of the $ 30,000 must be treated as a reduction of income assigned to the noncontrolling interest in the consolidated income statement unless the land is resold to a nonaffiliate in 20X4. In computing consolidated net income, it does not matter whether the land is or is not resold to a nonaffiliate before the end of the period; the $ 30,000 will not affect the computation of consolidated net income in 20X4 because the profits are on the subsidiary's books. Minor's trial balance as of December 31, 20X4, should be adjusted to remove the $ 30,000 gain because the gain is not yet realized. The $ 30,000 will not be treated as an adjustment in computing income assigned to the noncontrolling interest in the consolidated income statement in 20X4 unless the land is resold to a nonaffiliate in 20X4.

A proportionate share of the $ 30,000 must be treated as a reduction of income assigned to the noncontrolling interest in the consolidated income statement unless the land is resold to a nonaffiliate in 20X4.

When a 90 percent-owned subsidiary records a gain on the sale of land to an affiliate during the current period and the land is not resold before the end of the period: Ninety percent of the gain will be excluded from consolidated net income. A proportionate share of the unrealized gain will be excluded from income assigned to noncontrolling interest. Consolidated net income will be increased by the full amount of the gain. The full amount of the unrealized gain will be excluded from income assigned to noncontrolling interest.

A proportionate share of the unrealized gain will be excluded from income assigned to noncontrolling interest.

Lewis Company owns 80 percent of Tomassini Corporation's stock. You are told that Tomassini has sold equipment to Lewis and that the following consolidation entries are needed to prepare consolidated statements for 20X9: Consolidation Worksheet EntriesDebitCreditEquipment20,000 Gain on Sale of Equipment40,000 Accumulated Depreciation 60,000 Consolidation Worksheet EntriesDebitCreditAccumulated Depreciation5,000 Depreciation Expense 5,000 Which of the following is incorrect? The asset transfer occurred in 20X9 before the end of the year. From a consolidated viewpoint, depreciation expense as Lewis recorded it is overstated. Consolidated net income will be reduced by $ 40,000 when these consolidation entries are made. The parent paid $ 40,000 in excess of the subsidiary's carrying amount to acquire the asset.

Consolidated net income will be reduced by $ 40,000 when these consolidation entries are made.

Select the correct answer for each of the following questions. On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold sold the computer to TLK Corporation and recorded the following entry: Consolidation Worksheet EntriesDebitCreditCash39,000 Accumulated Depreciation16,000 Computer Equipment 40,000Gain on Sale of Equipment 15,000 TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of $ 45,000 including the gain on the sale of equipment, and TLK reported income from its own operations of $ 85,000 for 20X6. There is no change in the estimated economic life of the equipment as a result of the intercompany transfer. In the preparation of the 20X6 consolidated income statement, depreciation expense will be Multiple Choice Credited for $ 13,000 in the consolidation entries. Debited for $ 13,000 in the consolidation entries. Debited for $ 5,000 in the consolidation entries. Credited for $ 5,000 in the consolidation entries.

Credited for $ 5,000 in the consolidation entries.

Select the correct answer for each of the following questions. On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold sold the computer to TLK Corporation and recorded the following entry: Consolidation Worksheet EntriesDebitCreditCash39,000 Accumulated Depreciation16,000 Computer Equipment 40,000Gain on Sale of Equipment 15,000 TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of $ 45,000 including the gain on the sale of equipment, and TLK reported income from its own operations of $ 85,000 for 20X6. There is no change in the estimated economic life of the equipment as a result of the intercompany transfer. In the preparation of the 20X6 consolidated balance sheet, computer equipment will be Multiple Choice Debited for $ 1,000. Debited for $ 40,000. Debited for $ 15,000. Credited for $ 24,000.

Debited for $ 1,000.

Upper Company holds 60 percent of Lower Company's voting shares. During the preparation of consolidated financial statements for 20X5, the following consolidation entry was made: General JournalDebitCreditInvestment in Lower10,000 Land 10,000 Which of the following statements is correct? Multiple Choice Lower Company purchased land from Upper Company during 20X5. Upper Company purchased land from Lower Company before January 1, 20X5. Lower Company purchased land from Upper Company before January 1, 20X5. Upper Company purchased land from Lower Company during 20X5.

Lower Company purchased land from Upper Company before January 1, 20X5.

Perez Incorporated owns 80 percent of Senior Incorporated During 20X2, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 20X2. For 20X2 consolidated financial statements, how should the summation of Perez and Senior income statement items be adjusted? Sales and cost of goods sold should be reduced by the intercompany sales amount. CorrectNet income should be reduced by 80 percent of the gross profit on intercompany sales amount.No adjustment is necessary.Sales and cost of goods sold should be reduced by 80 percent of the intercompany sales amount.

Sales and cost of goods sold should be reduced by the intercompany sales

Under which concept is goodwill assigned to the noncontrolling interest for consolidated financial reporting purposes? The entity concept. The parent company concept. Both a and b. None of the above.

The entity concept.

Water Company owns 80 percent of Fire Company's outstanding common stock. On December 31, 20X9, Fire sold equipment to Water at a price in excess of Fire's carrying amount but less than its original cost. On a consolidated balance sheet at December 31, 20X9, the carrying amount of the equipment should be reported at Water's original cost less Fire's recorded gain. Correct Water's original cost. Water's original cost less 80 percent of Fire's recorded gain. Fire's original cost.

Water's original cost less Fire's recorded gain.

How is the portion of consolidated earnings to be assigned to the noncontrolling interest in consolidated financial statements determined? Multiple Choice a) The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling interest's percentage of ownership. b) The subsidiary's net income is extended to the noncontrolling interest. c) The parent's net income is subtracted from the subsidiary's net income to determine the noncontrolling interest. d) The amount of consolidated earnings on the consolidated worksheets is multiplied by the noncontrolling interest percentage on the balance sheet date.

a) The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling interest's percentage of ownership.

Why must intercompany transactions be eliminated? a. They portray the consolidated company's results too conservatively. b. They understate the results of the consolidated group. c. They are arm's-length transactions. d. They are not arm's-length transactions.

c. They are not arm's-length transactions.

In the preparation of a consolidated income statement: a) Income assigned to noncontrolling shareholders always is computed as a pro rata portion of the reported net income of the consolidated entity. b) Income assigned to noncontrolling shareholders always is computed as a pro rata portion of the reported net income of the subsidiary. c) Income assigned to noncontrolling shareholders in the current period is likely to be less than a pro rata portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an intercompany sale of depreciable assets in the preceding period. Assume the depreciable asset was subsequently sold in the current period. d) Income assigned to noncontrolling shareholders in the current period is likely to be more than a pro rata portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an intercompany sale of depreciable assets in the preceding period. Assume the depreciable asset was subsequently sold in the current period.

d) Income assigned to noncontrolling shareholders in the current period is likely to be more than a pro rata portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an intercompany sale of depreciable assets in the preceding period. Assume the depreciable asset was subsequently sold in the current period.