ACCT 4140

When a parent sells land to its subsidiary at a profit, what is the effect on the noncontrolling interest.

no effect

Consolidation Entry *G credits COGS because the beginning inventory component of COGS is

overstated by the intra-entity gross profit.

Intra-entity gross profits in beginning inventory require adjustment in the current consolidation worksheet because the previous year's consolidation entries are never _________ to the individual affiliates' books.

posted

In the year of an intra-entity depreciable asset transfer at a price in excess of the asset's carrying amount, consolidation entries are needed to

return the asset to its historical cost to the consolidated entity. remove the gain on sale from the intra-entity asset transfer. remove the effect of the intra-entity gain on depreciation expense

In periods subsequent to an intra-entity depreciable asset transfer (at a gain), Consolidation Entry *TA is modified when the parent applies the equity method and the transfer was downstream. The modification replaces the adjustment to the parent's retained earnings with an adjustment to the Investment in Subsidiary account because ________.

the equity method has already reduced the parent's retained earnings for the intra-equity gain. the debit to the Investment in Subsidiary account is needed to bring that account to zero in consolidation.

When the parent applies the equity method and routinely receives upstream inventory transfers from a subsidiary, Consolidation Entry *G involves a credit to COGS to recognize the intra-entity gross profit in beginning inventory and a debit to

the subsidiary's retained earnings.

When the parent applies the equity method and routinely transfers inventory downstream to its 80% owned subsidiary, any intra-entity gross profits remaining in the consolidated entity's ending inventory,

are allocated 100% to the parent company's share of consolidated net income.

Which of the following Consolidation Entries has the net effect of increasing the current period's consolidated net income?

G* or *G

A parent uses the initial value method, sells inventory to the subsidiary, and intra-entity gross profits exist in beginning inventory. What is the effect of Consolidation Entry *G on the consolidated financial statements?

Net income is reassigned from the previous year to the current year.

When intra-entity transfers of depreciable assets occur, what are the financial reporting objectives in preparing consolidated financial statements?

Re-establish historical cost balances for the transferred assets. Recognize appropriate income effects from the sale and use of intra-entity transferred assets. Defer intra-entity gains from intra-entity depreciable asset sales

When an intra-entity sale of a depreciable asset occurs at a price in excess of the asset's carrying amount, which of the following result from a consolidated entity perspective?

The carrying amount of the asset becomes overstated by the amount of the intra-entity gain. Retained earnings of the selling affiliate become overstated. Depreciation expense becomes overstated.

B Company sells land to its parent A Company and records a gain on the sale. In the year of the sale, what accounts must be adjusted in preparing a consolidation worksheet?

The gain on sale must be removed. The land must be written down to its original cost to the consolidated entity.

The accounting effects of intra-entity depreciable asset sales are removed in consolidation because no ________ of the asset occurred with an outside entity.

sale

In periods subsequent to an intra-entity depreciable asset transfer (at a gain), Consolidation Entry *TA is modified when the parent applies the equity method and the transfer was downstream. The modification replaces the adjustment to the parent's retained earnings with _________.

the Investment in Subsidiary account.

When the parent applies the equity method and routinely transfers inventory downstream, Consolidation Entry *G involves a credit to COGS to recognize the intra-entity gross profit in beginning inventory and a debit to

the Investment in Subsidiary account.

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

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 ___________ account.

sales or revenue

When a parent applies the equity method and upstream intra-entity gross profits exist in the beginning inventory, the debit to the subsidiary's Retained Earnings account in Consolidated Entry S

will decrease by the debit to the subsidiary's Retained Earnings account in Consolidation Entry *G.

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?

the asset account

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, Consolidation Entry G debits COGS because

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

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, Consolidation Entry G credits Inventory because

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

In the presence of upstream intra-entity inventory transfers, from a consolidated view which of the following accounts becomes overstated in the year following the transfer?

The subsidiary's retained earnings.

What is the reason Consolidation Entry *G credits COGS for the intra-entity gross profit present in beginning inventory?

To correct for the overstatement of the beginning inventory component of COGS. Because the credit to COGS increases the net income of the consolidated entity in the year the inventory is sold to outsiders.

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

How does the direction of intra-entity transfers (resulting in intra-entity gross profit in inventories) affect the computation of the noncontrolling interest's share of consolidated net income

Upstream inventory transfers affect the computation.

In years subsequent to an intra-entity depreciable asset transfer from a subsidiary to its parent (at a gain), Consolidation Entry *TA removes the gain from the Retained Earnings account of the seller. In each successive year, the amount of the Consolidation Entry *TA debit to Retained Earnings ________.

decreases

When the parent applies the equity method and routinely transfers inventory downstream, any intra-entity gross profits remaining in the consolidated entity's ending inventory

does not affect the noncontrolling interest.

When the parent employs the equity method, Consolidation Entry *GL debits the Investment in Subsidiary account for intra-entity gains that resulted from

downstream land transfers.

If the parent uses the initial value method for its internal investment accounting, in consolidation adjustments are needed to _________.

reflect a full accrual basis in the consolidated financial statements.

When intra-entity gross profits exist in a parent company's beginning inventory, the current year consolidated worksheet should contain an entry to

remove the intra-entity gross profit from the seller's beginning retained earnings.

Compared to intra-entity gross profits in inventory, intra-entity gross profits from land transfers

can require consolidation entries to RE indefinitely until the land is sold to outsiders. can require consolidation entries to land indefinitely until the land is sold to outsiders.

In the presence of a 10% noncontrolling interest, how much intra-entity gross profit remaining in ending inventory should be eliminated in consolidation?

100%

How does the equity method adjust the parent's Equity in Earnings account for intra-entity gross profits in beginning inventories from downstream sales to an 80% owned affiliate?

100% of the intra-entity gross profits in beginning inventory are recognized.

How does the equity method adjust the parent's Equity in Earnings account for intra-entity gross profits in beginning inventories from upstream sales to an 80% owned affiliate?

80% of the intra-entity gross profits in beginning inventory are recognized.

How does the ASC describe the effect of intra-entity gross profit remaining in ending inventory on the noncontrolling interest?

Any intra-entity income or loss may be allocated between the parent and noncontrolling interest.

What is the effect of upstream intra-entity beginning inventory gross profits on the consolidation conversion entry (asterisk C) when the parent employs the initial value method?

Any intra-entity upstream inventory gross profit serves to decrease the amount of the Consolidation Entry asterisk C worksheet adjustment.

Why do upstream intra-entity beginning inventory gross profits affect the Consolidation Entry asterisk C when the parent employs the initial value method?

Because the change in subsidiary's retained earnings (and book value) includes the unrealized gross profit as of the beginning of the year.

How do gross profits resulting from upstream inventory transfers affect the computation of consolidated net income attributable to the noncontrolling interest?

Beginning inventory gross profits increase the noncontrolling interest's share of consolidated net income. Ending inventory gross profits decrease the noncontrolling interest's share of consolidated net income.

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.

In period's subsequent to a depreciable asset transfer (gain recorded) from a subsidiary to its parent, which of the following individual affiliate accounts continue to be misstated from a consolidated perspective?

Depreciation expense. Accumulated depreciation. Retained earnings of the selling affiliate.

In applying the equity method, why does the parent defer 100% of intra-entity inventory gross profits from downstream transfers even when owning a controlling, but less-than-100% ownership in the subsidiary.

The 100% deferral ensures that none of the intra-entity gross profit will be attributable to the noncontrolling interest.

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: The parent's accounting method choice (e.g., equity vs. initial value method) has no effect on the ultimate totals reported in consolidated financial statements.

True

In periods subsequent to an intra-entity depreciable asset transfer (at a gain), Consolidation Entry ED

continues to reduce accumulated depreciation for the current year depreciation expense overstatement. continues to reduce depreciation expense for the current year overstatement caused by the inflated transferred asset value.

In years subsequent to an intra-entity depreciable asset transfer from a subsidiary to its parent (at a gain), Consolidation Entry *TA restores the accumulated depreciation of the transferred asset. In each successive year, the amount of the Consolidation Entry *TA credit to Accumulated Depreciation ________.

decreases

When the parent applies the equity method and routinely transfers inventory downstream, which of the following consolidation entries are sometimes needed to bring the Investment in Subsidiary account to a zero balance?

(D) for the parent's share of subsidiary dividends declared. (*G) for intra-entity gross profits in beginning inventory. (I) for the equity in subsidiary earnings recognized by the parent.

For a 40% investment that provides the investor significant influence, 40% of intra-entity gross profits in ending inventory from downstream transfers are deferred from the investor's equity earnings when the equity method is applied. If, instead, the investor owns a 70% controlling interest in a subsidiary

100% of the intra-entity gross profits in ending inventory from downstream transfers are deferred from the investor's equity earnings.

How does the equity method adjust the parent's Equity in Earnings account for intra-entity gross profits in ending inventory from upstream sales to an 80% owned affiliate?

80% of the intra-entity gross profits in ending inventory are deferred.

Which of the following Consolidation Entries has the net effect of decreasing the current period's consolidated net income?

G

A parent uses the initial value method, sells inventory to the subsidiary, and intra-entity gross profits exist in beginning inventory. What is the effect of the intra-entity gross profits in beginning inventory on Consolidation Entry *G?

Both COGS and the parent's RE are decreased.

Compared to the equity method, when the parent uses the initial value method, which consolidation entries for intra-entity transfers may differ or additionally be included?

The Consolidation Entry (*G) to recognize the intra-entity profit in beginning inventory. The Conversion Entry (*C).

As part of Consolidation Entry S, the debit to the subsidiary's RE is reduced due to intra-entity gross profits in beginning inventory. What effect does this reduction have on the beginning-of-the-year balance of the noncontrolling interest?

The beginning balance of the noncontrolling interest is entered as a smaller amount.

By decreasing COGS, Consolidation Entry *G _______________ consolidated net income.

increases

In the consolidated income statement, the net income attributable to the noncontrolling interest is affected by

intra-entity gross profits from upstream inventory transfers. excess acquisition-date fair value amortizations.

Because the individual companies comprising a consolidated entity frequently maintain separate accounting records, the effects of intra-entity inventory transfers

must be identified and removed as part of the process of preparing consolidated financial statements.

Company A accounts for its investment in subsidiary using the equity method. Company B uses the initial value method. Both companies have intra-entity gross profits in their consolidated inventories from downstream sales. Comparing Exhibits 5.7 and 5.4, how are the final consolidated totals affected by the investment accounting method choice?

no effect

When the parent transfers inventory downstream, none of the intra-entity gross profits from the transfer remaining in the subsidiary's ending inventory is allocated to the ________ interest in computing consolidated net income.

noncontrolling

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.

reduces COGS

When land is sold at a gain across members of a consolidated group, in years subsequent to the land sale, where does the gain reside?

In the seller's retained earnings account and the buyer's land account.

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. write-down the value of the land by the amount of the intra-entity gain.

Company A accounts for its investment in subsidiary using the equity method. Company B uses the initial value method. Both companies have intra-entity gross profits in their consolidated inventories from upstream sales. Comparing Exhibits 5.8 and 5.6, how are the final consolidated totals affected by the investment accounting method choice?

No effect

Company A accounts for its investment in subsidiary using the equity method. Company B uses the initial value method. Both companies have intra-entity gross profits in their consolidated inventories from downstream sales. Comparing Exhibits 5.7 and 5.4 shows ________ difference in consolidated totals resulting from the investment accounting (equity vs. initial value) method choice.

No

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 historical cost balance for the transferred asset. ensures the exclusion of the intra-entity gain in the consolidated income statement. restores the amount of accumulated depreciation removed when the sale was recorded on the selling entity's books.

The purpose of consolidation entry TI is to

remove the effects of intra-entity sales and purchases for the consolidated reporting entity.