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Cube Automobiles Corp. owns 80% of Sphere Motors Corp.'s common stock. On January 1, 20X2, Cube purchases a building from a nonaffiliate for $50,000. On January 1, 20X5, Cube transfers the building to Sphere for $45,000. Assuming that the depreciation on the building to date is $15,000, Cube's gain on the sale of the building is

$10,000.

Quad Pharma Corp. owns a 60% stake in Edge Pharma Corporation. During 20X1, Edge Pharma sold inventory costing $100,000 to Quad Pharma for $130,000. Quad Pharma sold the entire inventory it purchased from Edge Pharma by the end of 20X1. Calculate the profit that would accrue to Edge Pharma's noncontrolling interest at the end of 20X1.

$12,000

True or false: When a parent company uses the modified equity method to account for its investment in a subsidiary, unrealized gains or losses arising from intercompany transactions are removed from the retained earnings of the parent company in the subsequent periods.

True

Which of the following are true regarding the cost method of accounting for an investment in a subsidiary?

Using the cost method, the parent does not record the parent's share of the subsidiary's earnings. Using the cost method, the parent records dividends received from the subsidiary as income. Using the cost method, the parent does not remove unrealized intercompany profits.

When using the modified equity method to record the receipt of dividends from a subsidiary company, the parent company ...............the Investment in the Subsidiary account.

credit

Brevity Hospitals Inc. purchased inventory from a nonaffiliate for $50,000 on July 31, 20X3. Brevity sells this inventory to its subsidiary, Charter Medical Inc., for $60,000 on September 30, 20X3. Charter sold 80% of this inventory by December 31, 20X3. The amount of gross profit to be deferred at the end of 20X3 is ______.

$2,000

Which of the following is the difference in recording the intercompany transfer of an intangible asset compared to the recording of a tangible asset?

Amortizable intangibles normally are reported at the remaining unamortized balance without the use of a contra account for accumulated amortization.

Anchor Hotels Inc. purchased 80% of Dockyard Foods Inc.'s common stock on January 1, 20X1. During 20X2, Dockyard declared a dividend of $90,000 and reported net income of $300,000 for the year. Which of the following is Anchor's modified equity journal entry to record the receipt of dividends from Dockyard in 20X2?

Debit Cash for $72,000; Credit Investment in Dockyard Foods for $72,000

Which of the following is the equity method journal entry on the parent's books to defer unrealized gross profit on downstream transfers of inventory sales when the inventory has not yet been resold by the subsidiary?

Debit Income from Subsidiary; Credit Investment in Subsidiary

Enterprise Chemicals Inc. holds 70% of Able Pharmaceuticals Corp.'s common stock. On January 1, 20X1, Able purchased a building from a nonaffiliate for $50,000. On December 31, 20X2, Able sold the building to Enterprise for $35,000. The book value of the building as of the date of sale was $40,000. Which of the following is Enterprise's modified equity method journal entry to record its share of Able's income? Assume that Able recorded net income of $100,000 for 20X2, including any intercompany gain and losses.

Debit Investment in Able Pharmaceuticals for $70,000; Credit Income from Able Pharmaceuticals for $70,000

Camouflage Fashions Inc. owns 80% of Bubbles Apparels Corp.'s common stock. On January 1, 20X1, Bubbles sold land costing $200,000 to Camouflage for $250,000. The land had not yet been sold to a nonaffiliate as of December 31, 20X2. Which of the following is the consolidation entry associated with this intercompany transfer at the end of 20X2?

Debit Investment in Bubbles for $40,000; Debit NCI in Net Assets of Bubbles for $10,000; Credit Land for $50,000

Icon Oil Corp. purchased 70% of Popular Energy Inc.'s common stock in 20X1. For the year 20X2, Popular recorded net income of $100,000 and declared dividends of $60,000. Which of the following is the modified equity method journal entry to record Icon's share of Popular's net income?

Debit Investment in Popular Energy for $70,000; Credit Income from Popular Energy for $70,000

Which of the following is the consolidation entry to eliminate the effects of the overstatement of inventory due to intercompany inventory transfers in the year of the intercompany inventory sale?

Debit Sales; Credit Cost of Goods Sold; Credit Inventory

Which of the following accounts would be debited in the consolidation entry to adjust the depreciable asset and accumulated depreciation to as if the upstream transfer had never occurred? Assume the depreciable asset was sold for a gain.

Depreciable Asset NCI in NA of Subsidiary Investment in Subsidiary

Which of the following accounts is credited in preparing the basic consolidation entry?

Dividends Declared by the Subsidiary

Identify the effect of amortization of parent's share of differential, under cost method of accounting.

No entry is made for amortization of differential.

Identify the treatment of intercompany sale of intangible assets in consolidation.

Other than netting the accumulated amortization, the treatment is same as intercompany sale of tangible asset

Which of the following is true of the accounting treatment of an intercompany transfer of depreciable fixed assets before year-end?

A portion of the intercompany gain or loss is considered realized in the period of transfer. The consolidation entries at year-end must adjust year-end depreciation and accumulated depreciation.

In accounting for investments in subsidiaries using the modified equity method, the parent company eliminates its share of the unrealized gains or losses on intercompany sale of assets from

its own retained earnings in the period after the intercompany transaction.

City Properties Inc., a construction company, owns 70% of Town Developers Corp.'s common stock. On January 1, 20X2, Town Developers purchased land from a nonaffiliate for $100,000. It sold this land to City Properties for $120,000 during 20X2. City Properties sold this land on December 31, 20X3 for $125,000 to a nonaffiliate. The unrealized gain attributable to the noncontrolling interest in 20X2 is

$6,000.

Smart Media Corp. purchased goods costing $60,000 from a nonaffiliate company on September 30, 20X2. Smart Media transferred this inventory to its subsidiary, Outlet Media Inc., on October 5, 20X2, for $75,000. As of December 31, 20X2, Outlet Media had not yet resold any of this inventory. Calculate the unrealized gross profit that should be deferred at the end of 20X2.

$15,000

Cube Automobile Corp. owns 80% of Sphere Motors Corp.'s common stock. On January 1, 20X2, Cube purchased a building from a nonaffiliate for $50,000. On January 1, 20X5, Cube transferred the building to Sphere for $45,000. Assume that Cube and Sphere depreciate buildings using the straight-line method over a 10-year period assuming no salvage value. What is the accumulated depreciation on Cube's books at the end of 20X4?

$15,000.

Rad Commodities Corp. holds 60% of Fusion Corp.'s common stock. On January 1, 20X1, Rad Commodities transferred inventory costing $50,000 to Fusion for $60,000. During 20X1, Fusion resold $45,000 of this inventory to nonaffiliates. Calculate the unrealized profit or loss that should be eliminated from inventory at the end of 20X1.

$2,500

Linen Apparels Inc. holds 60% of Woolmede Clothing Inc.'s common stock. On January 1, 20X1, Woolmede purchased equipment for $10,000. On December 31, 20X2, Woolmede sold the equipment to Linen for a gain of $1,000. Woolmede reported net income of $60,000 for 20X2. Calculate the net income of Woolmede attributable to the noncontrolling interest for 20X2.

$23,600

On January 1, 20X3, Tow Products Inc. purchased a building for $60,000. It sold the building to its subsidiary, Breeze Commodities Inc., for $45,000 on January 1, 20X6. The group depreciates buildings using the straight-line method, assuming a 10-year useful life and that the buildings do not have a salvage value. Calculate the gain on this intercompany depreciable asset sale.

$3,000

Horizontal Infrastructure Corp. holds 90% of Vertical Surveyors Inc.'s common stock. On December 31, 20X1, Vertical sold land for $45,000 to Horizontal. Vertical's book value for the land on December 31, 20X1, was $40,000. For the year 20X1, Vertical reported net income of $125,000, while Horizontal reported separate income of $200,000. Calculate the income attributable to the controlling interest for 20X1.

$308,000

Sharpe Electronics Corp. holds a 75% stake in Worldwide Electronics Corporation. On October 29, 20X4, Worldwide purchased inventory costing $80,000 from a nonaffiliate. Worldwide sold the inventory to Sharpe for $100,000 on November 15, 20X4. Sharpe resold the inventory to a nonaffiliate on January 25, 20X5. Assuming that Sharpe had separate operating income of $300,000 and Worldwide had net income of $350,000 for 20X4, calculate Worldwide's realized income for 20X4.

$330,000

Wisp Corp., a telecommunications company, purchased inventory costing $30,000 from a nonaffiliate company on August 31, 20X3. Wisp transferred this inventory to its subsidiary, Cadmium Telecom Inc., for $40,000 on September 10, 20X3. Cadmium could not sell any of the inventory it purchased from Wisp by the end of the year. Calculate the inventory amount that will appear in the consolidated balance sheet at the end of the year, assuming the year-end inventory balances were $200,000 and $150,000 for Wisp and Cadmium, respectively.

$340,000

Channel Fashions Corp. owns 70% of Studio Clothing Corp.'s common stock. On January 1, 20X1, Channel purchased equipment for $60,000. Channel depreciates the equipment using the straight-line method over a 10-year period assuming no salvage value. On December 31, 20X1, Channel sold the equipment to Studio for $58,000. On July 1, 20X3, Studio sold the equipment to a nonaffiliate for $48,000. Calculate the unrealized gain that Channel would defer at the end of 20X1 using the fully adjusted equity method.

$4,000

Trunk Pharma Inc., a pharmaceutical company, purchased land from a nonaffiliate for $300,000 on January 1, 20X1. Trunk sold the land to Tusk Chemicals, a subsidiary, for $330,000 on July 1, 20X1. Tusk sold the land to a nonaffiliate on July 1, 20X4 for $370,000. What is the gain that Tusk would recognize on the sale of the land in the year 20X4?

$40,000

In 20X1, Amp Systems Inc. sold goods that cost $45,000 to its subsidiary, Velocity Systems Corp., for $50,000. Velocity Systems did not resell the inventory in 20X1. The inventory was sold for $65,000 in 20X2. Calculate the gross profit that needs to be deferred for 20X1 and realized in 20X2.

$5,000

Essential Super Market Corp. holds a 70% stake in Sandalwood Products Corp.'s common stock. On January 1, 20X1, Essential purchased land for $500,000 from an independent third party. On June 30, 20X1, Essential sold the land to Sandalwood for $575,000. Sandalwood sold the land to a nonaffiliate on January 1, 20X4 for $625,000. Calculate the amount of profit Sandalwood would recognize on the sale of land to a nonaffiliate.

$50,000

Blizzard Shipping Corp. holds a 70% stake in Maroon Foods Corp.'s common stock. On January 1, 20X1, Blizzard purchased land for $600,000 from an independent third party. On July 1, 20X1, Blizzard sold the land to Maroon for $650,000. Maroon sold the land to a nonaffiliate on January 1, 20X5, for $800,000. The amount of deferred profit Blizzard would reverse upon the sale of the land to a nonaffiliate is

$50,000.

Sharpe Electronics Corp. holds a 75% stake in Worldwide Electronics Corporation. On October 29, 20X4, Worldwide purchased inventory costing $80,000 from a nonaffiliate. Worldwide sold the inventory to Sharpe for $100,000 on November 15, 20X4. Sharpe sold the inventory to a nonaffiliate on January 25, 20X5. Assuming that Sharpe had separate operating income of $300,000, Worldwide had net income of $350,000, and consolidated income was $630,000 for 20X4, Sharpe's share of consolidated net income was

$547,500.

Fuse Electrical Corp. owns 60% of Diffuse Electrical Corp's common stock. During 20X2, Diffuse sold land to Fuse for a gain of $10,000. Fuse reported separate income of $250,000 for 20X2 and Diffuse reported net income of $50,000 for the same year. What amount of unrealized gain will be deferred on Fuse's books using the fully adjusted equity-method?

$6,000

Suncatcher Windows Inc. holds 80% of Rainbow Lighting Inc.'s common stock. On January 1, 20X4, Rainbow sold equipment to Suncatcher for $80,000. Rainbow purchased this equipment from an independent nonaffiliate for $110,000 on January 1, 20X1. The equipment has a useful life of 10 years. Calculate the unrealized gain on the intercompany sale attributable to Rainbow's noncontrolling interest.

$600

Polonium Corp. holds an 80% stake in Radon Inc.'s common stock. On July 1, 20X4, Radon purchased inventory costing $60,000 from a nonaffiliate. Radon sold the inventory to Polonium for $70,000 on August 15, 20X4. Polonium sold the inventory on January 1, 20X5 to an unaffiliated customer. In 20X4, Polonium eliminated unrealized gross profit on inventory purchased from Radon. Which of the following is the equity method journal entry to reverse the 20X4 gross profit deferral on inventory sold to unaffiliated customers?

Debit Investment in Radon for $8,000; Credit Income from Radon for $8,000

Theory Systems Corp. owns 70% of Practical Solutions Inc.'s common stock. On January 1, 20X2, Theory purchased equipment from a nonaffiliate for $70,000. On January 1, 20X4, Theory sold the equipment to Practical for $65,000. As of December 31, 20X4, Practical still held the equipment. For the year ended December 31, 20X4, Theory reported net income of $300,000, while Practical reported income of $200,000 independent of the intercompany transaction. Calculate Practical's depreciation on the equipment for the year 20X4, assuming the equipment had an original life of 10 years and Practical uses the straight-line depreciation method. Also, assume that Practical does not revise Theory's original estimate of the equipment's useful life.

$8,125

Radium Inc. holds 60% of Sodium Corp.'s common stock. On September 30, 20X1, Radium sold inventory costing $20,000 to Sodium for $22,000. Sodium eventually resold this inventory to a nonaffiliate on January 14, 20X3 for $25,000. Thus, Sodium Inc. still held the inventory at December 31, 20X2. Which of the following is the consolidation entry to restate the inventory to its original cost when consolidated financial statements are prepared at the end of 20X2?

Debit Investment in Subsidiary for $2,000; Credit Inventory for $2,000

Commerce Cube Inc., transferred inventory costing $18,000 to its subsidiary, Tradi Inc., for $20,000. At the end of the financial year, Tradi still had $6,000 of this inventory on hand. Calculate the markup on sales.

10%

Multimedia Systems Inc. purchased land for $100,000 on January 1, 20X2, from a nonaffiliate. Multimedia transferred the land to its subsidiary, Solo Software Inc., at cost on July 1, 20X2, for cash. Which journal entry would Solo record in its own books with respect to the purchase of land from Multimedia Systems?

Debit Land for $100,000; Credit Cash for $100,000.

The entry for the depreciation on the asset acquired through a downstream transfer has a credit to _____.

Accumulated Depreciation Account

Mission Pharma Inc. holds 80% of Ambition Chemicals Corp.'s common stock. On January 1, 20X1, Ambition purchased equipment from a nonaffiliate for $20,000. On December 31, 20X1, Ambition sold the equipment to Mission for $19,000. Assume the equipment had a useful life of 10 years and is depreciated using the straight-line method. Which of the following would be credited in the 20X2 consolidation entry to adjust the depreciable asset and the accumulated depreciation to as if the upstream transfer had not occurred?

Accumulated Depreciation for $2,000

Actinide Products has only two subsidiaries—Cadmium Inc. and Copper Inc. Which of the following transactions represent an intercompany transfer?

Actinide Products sold goods to Cadmium Inc. Cadmium Inc. provided consulting services to Copper Inc.

On January 1, 20X1, Anderson Products Inc. sold land costing $300,000 to its subsidiary, Jackson Interiors Corp., for $350,000. Jackson still held the land at the end of 20X2. Jackson sold the land to a nonaffiliate on March 31, 20X3, for $365,000. Prepare the consolidation entry related to the land at the end of 20X3.

Debit Investment in Jackson for $50,000; Credit Gain on Sale of Land for $50,000

On January 1, 20X1, Anderson Products Inc. sold land costing $300,000 to its subsidiary, Jackson Interiors Corp., for $350,000. Jackson still held the land at the end of 20X2. Jackson sold the land to a nonaffiliate on March 31, 20X3, for $365,000. Prepare the consolidation entry related to the land at the end of 20X2

Debit Investment in Jackson for $50,000; Credit Land for $50,000

Which of the following is true of the basic consolidation entry?

Common Stock of the Subsidiary is debited. Retained Earnings of the Subsidiary is debited

Which of the following shares the intercompany profits in an upstream sale of inventory?

Controlling interest of parent company Noncontrolling interest

Identify the adjustment that is done in the consolidated entry for a parent company holding the asset sold by a subsidiary.

Correction of the balance in both the asset and investment in subsidiary accounts each year

Which of the following are credited to eliminate the overstated inventory and overstated income due to a downstream sale of inventory?

Cost of Goods Sold Inventory

On January 1, 20X3, Tow Products Inc. purchased a building for $60,000. Tow sold the building to its subsidiary, Breeze Commodities Inc., for $50,000 on December 31, 20X5. The group depreciates buildings using the straight-line method assuming a 10-year useful life and that the buildings do not have a salvage value. Prepare the December 31, 20X5 consolidation entry to eliminate the gain on the sale of the building.

Credit Accumulated Depreciation for $18,000 Debit Gain on Sale of Building for $8,000 Debit Buildings for $10,000

The consolidation entry to eliminate the cost of goods sold related to an intercompany inventory transfer would include a............to Cost of Goods Sold.

Credited

When the inventory is resold to a nonaffiliate, the Investment in Subsidiary account is ...........................as part of the equity method journal entry to record the reversal of the prior year's deferred gross profit from an intercompany inventory transfer.

Debit

On January 1, 20X1, Freeway Advisory Corp. purchased a building from a nonaffiliate for $100,000. The estimated useful life of the asset on that date was 10 years. On January 1, 20X4, Freeway sold the building to its subsidiary, Highway Advisory Inc., for $77,000 and Highway did not adjust the useful life estimate of Freeway. Which of the following is the consolidation entry to adjust depreciation expense and accumulated depreciation for the excess depreciation?

Debit Accumulated Depreciation for $1,000; Credit Depreciation Expense for $1,000

Which of the following is the optional accumulated depreciation consolidation entry?

Debit Accumulated Depreciation; Credit Plant Asset

Ivory Arts Inc. purchased land from a nonaffiliate for $100,000 on January 1, 20X3. Ivory transferred the land to its subsidiary, Precision Artworks Corp., for $120,000 on July 1, 20X3. Which of the following is the journal entry to record the sale of the land on Ivory's books?

Debit Cash for $120,000; Credit Land for $100,000; Credit Gain on Sale of Land for $20,000

Cube Automobile Corp. owns 80% of Sphere Motors Corp.'s common stock. On January 1, 20X2, Cube purchased a building from a nonaffiliate for $50,000. On January 1, 20X5, Cube transferred the building to Sphere for $45,000. Cube and Sphere depreciate buildings using the straight-line method over a 10-year period and assume no salvage values. Which of the following is the journal entry to record Cube's sale of the building to Sphere?

Debit Cash for $45,000; Debit Accumulated Depreciation for $15,000; Credit Building for $50,000; Credit Gain on Sale of Building for $10,000

In 20X3, Alliance Insurance Corp. provided consulting services to its subsidiary, Simple Insurance Inc., for $80,000. What would be the consolidation entry to eliminate this intercompany transaction?

Debit Consulting Revenue for $80,000; Credit Consulting Expense for $80,000

Iris Corp., an apparel merchandiser, purchased inventory from a supplier for $15,000 on April 1, 20X9. Iris resold this inventory to its subsidiary, Blue Inc., for $20,000 on July 30, 20X9. Which of the following journal entries would Iris use to record the transfer of the goods to Blue?

Debit Cost of Goods Sold for $15,000; Credit Inventory for $15,000 Debit Cash for $20,000; Credit Sales for $20,000

Blue Mining Corp. holds a 60% stake in Mission Mining Inc. Mission Mining Corporation declares $60,000 as dividends for 20X1. Record the journal entry to consolidate the dividends declared under the cost method.

Debit Dividend Income by $36,000 and Noncontrolling Interest in NI by $24,000; Credit Dividends Declared by $60,000

Edge Investments Inc. purchased land from an independent third party for $175,000 on January 1, 20X2. Edge sold the land to its subsidiary, Corner Investments Corp., for $180,000 on July 1, 20X2. Corner still held this land as of December 31, 20X2. Under the fully adjusted equity method, which of the following is Edge's journal entry to defer the gain associated with the intercompany transaction? Assume that Edge holds 70% of Corner's common stock.

Debit Income from Corner for $5,000; Credit Investment in Corner for $5,000

Equinox Systems Inc. transfers inventory costing $60,000 to its parent company, Solstice Computers Inc., for $70,000 on October 25, 20X4. This inventory was not resold to a nonaffiliate company until January 15, 20X5 when it was sold for $75,000. What is Solstice's equity method journal entry to defer the unrealized gross profit on the upstream transaction on December 31, 20X4? Solstice Computers holds 90% of Equinox Systems' common stock.

Debit Income from Equinox for $9,000; Credit Investment in Equinox for $9,000

Rustfree Mining Corp. transferred inventory to its subsidiary, Boron Mining Corp., for $20,000. Rustfree originally purchased the inventory for $17,500. Boron had not resold the inventory to a nonaffiliate by the end of the accounting period. Which of the following is the consolidation entry to eliminate the effects of the intercompany sale?

Debit Sales for $20,000; Credit Cost of Goods Sold for $17,500; Credit Inventory for $2,500

On January 1,20X1, Dubnium Corp. sold inventory costing $20,000 to its subsidiary, Bohrium Inc., for $22,000. Bohrium sold the inventory to a nonaffiliate for $25,000. Which of the following consolidation entries would correct both Sales and Cost of Goods Sold that are misstated because of this intercompany inventory transfer?

Debit Sales for $22,000; Credit Cost of Goods Sold for $22,000

Active Retail Corp. and Insider Retail Corp. are 100% owned subsidiaries of Cloud Retail Corporation. On September 30, 20X5, Active sold inventory costing $20,000 to Insider for $25,000. Insider had all of the inventory on hand at the end of the period. Which of the following is the consolidation entry to eliminate the intercompany sale?

Debit Sales for $25,000; Credit Cost of Goods Sold for $20,000 and Inventory for $5,000

Mission Pharma Inc. holds 80% of Ambition Chemicals Corp.'s common stock. On January 1, 20X1, Ambition purchased equipment from a nonaffiliate for $20,000. On December 31, 20X1, Ambition sold the equipment to Mission for $19,000. Assume the equipment had a useful life of 10 years and is depreciated using the straight-line method. In preparing the consolidation entry for 20X2 to adjust the depreciable asset and the accumulated depreciation to as if the upstream transfer had not occurred, which of the following would be debited?

Equipment for $1,000 NCI in NA of Ambition Chemicals Corp. for $200 Investment in Ambition Chemicals Corp. for $800

True or false: The entries in the consolidation worksheet are always the same under the modified equity method as under the fully adjusted method.

False

True or false: Under the cost method, the dividend declared by the subsidiary reduces investment in subsidiary.

False

True or false: When related companies transfer land at book value, a special adjustment is needed before the preparation of consolidated financial statements.

False

On January 1, 20X3, Tow Products Inc. purchased a building for $60,000. Tow sold the building to its subsidiary, Breeze Commodities Inc., for $50,000 on January 1, 20X5. The group depreciates buildings using the straight-line method assuming a 10-year useful life and that the buildings do not have a salvage value. Calculate the gain or loss on the intercompany transaction.

Gain of $2,000

Channel Fashions Corp. owns 70% of Studio Clothing Corp.'s common stock. On January 1, 20X1, Channel purchased equipment for $60,000. Channel depreciates the equipment using the straight-line method over a 10-year period assuming no salvage value. On December 31, 20X1, Channel sold the equipment to Studio for $58,000. On July 1, 20X3, Studio sold the equipment to a nonaffiliate for $48,000. Which of the following are part of the equity method journal entry at the end of 20X1 to defer the unrealized gain arising from the intercompany sale of equipment?

Income from Studio Clothing would be debited for $4,000. Investment in Studio Clothing would be credited for $4,000.

Which of the following is credited as part of the consolidation entry to eliminate an intercompany inventory sale from one subsidiary to another subsidiary of the same parent company when the inventory remains on hand at the end of the period?

Inventory Cost of Goods Sold

Range Commodities Inc. holds 80% of Arrange Products Inc.'s common stock. During 20X2, Arrange sold land to Range for a gain of $15,000. Which of the following accounts would be used in Range's journal entry to defer the unrealized gain on the sale of the land when Range uses the fully adjusted equity-method?

Investment in Arrange Products Income from Arrange Products

On January 1, 20X3, Foxtail Consultancy Inc. purchased a building from a nonaffiliate for $30,000. On December 31, 20X5, Foxtail sold the building to its subsidiary, Parrot Tree Consultancy Inc., for $25,600. The estimated useful economic life of the building is 10 years. Which of the following accounts will be affected in the 20X6 adjusting worksheet entry arising from the downstream sale?

Investment in Parrot Tree Consultancy Buildings & Equipment Accumulated Depreciation

Which of the following accounts is debited as part of the reversal of previously deferred gross profit consolidation entry?

Investment in Subsidiary

Assuming a partially owned subsidiary, which of the following accounts is debited as part of the consolidation entry to reverse the gross profit deferral from the prior year?

Investment in Subsidiary NCI in the Net Assets of Subsidiary

Which of the following is true of markup on sales?

Markup on sales is another term for the gross profit ratio or gross profit percentage. Markup on sales is calculated by dividing gross profit by sales.

Identify the impact of the yearly consolidation entry for an unrealized gain after the year of sale of land to an outsider.

No consolidation entry is made.

Assume that a subsidiary company sells land to its parent company at a profit. The parent company sells the land to a nonaffiliate in the subsequent year at a gain. Which of the following is true of the realized gains on an upstream sale of land?

The gain on an upstream sale of land is divided between the parent company and the noncontrolling interest.

Which of the following represents a difference in consolidation entries when the parent uses the modified equity method instead of the fully adjusted equity method?

The amount in the Investment in Subsidiary account is not reduced by the parent's share of an intercompany transfer deferral. The amount in the Income from Subsidiary account is not reduced by the parent's share of an intercompany transfer deferral.

Essence Foods Corp. holds a 70% stake in Fragrance Hotels Corp.'s common stock. On January 1, 20X1, Essence purchased land for $300,000 from an independent third party. On June 30, 20X1, Essence sold the land to Fragrance for $320,000. Fragrance sold the land to a nonaffiliate on January 1, 20X4 for $350,000. Which of the following best describes the accounting treatment of the unrealized profit related to the intercompany land sale?

The deferral of the unrealized profit of $20,000 from the intercompany land transfer must be reversed in 20X4 when the land is sold. The unrealized profit of $20,000 is deferred from June 30, 20X1 to January 1, 20X4.

Which of the following are accomplished by consolidation entries used to eliminate the effects of intercompany inventory transfers?

The original cost of inventory is reported in the consolidated balance sheet when the inventory has not yet been sold to a nonaffiliate. The cost of inventory is charged to consolidated cost of goods sold in the period in which the inventory is resold to nonaffiliates.

Dynamic Metals Corp. owns a 70% stake in Stagnant Metals Incorporated. On August 25, 20X8, Dynamic purchased inventory for $25,000 from a third party and sold it to Stagnant for $30,000. Stagnant sold this inventory on January 1, 20X9 to a nonaffiliate for $40,000. What is the accounting treatment for the unrealized intercompany inventory transaction if the modified equity method is applied?

The unrealized gross profit of $5,000 is not removed from the Dynamic Metals' share of the Investment in Stagnant Metals of 20X8. The unrealized gross profit of $5,000 is debited from beginning retained earnings of 20X9.

Which of the following best describe the purpose of the consolidation journal entry to eliminate the gain or loss on sale of a depreciable asset?

To correct the basis of the asset transferred. To convert each account of the entry to "as if" the transfer has not taken place.

Which of the following best describes the need to record a consolidation entry related to intercorporate sales?

To eliminate the intercorporate sales revenue and cost of goods sold of the seller To eliminate any unpaid payable or receivable balance associated with the intercorporate sales

For which of the following reasons would a worksheet consolidation entry be required?

To remove the cost of goods sold from an intercompany inventory transaction To eliminate the seller's sales revenue in an intercompany inventory transaction To avoid the overstatement of consolidated sales revenue or consolidated cost of goods sold

Which of the following is likely to be overstated if the consolidation entry to eliminate intercompany consulting service revenues is not recorded?

Total consulting revenue Total consulting expense

No distinction is made between wholly owned and less-than-wholly-owned subsidiaries in determining whether to eliminate intercompany transfers.

True

The entire unrealized profit or loss on intercompany transfers must be removed from the inventory so that intercompany inventory will be reported at its original cost to the consolidated entity.

True

Which of the following are true of unrealized intercompany profits and losses?

Unrealized intercompany profits and losses are the unconfirmed profits and losses resulting from transactions with affiliates. Unrealized intercompany profits and losses are always eliminated in the consolidation process.

In consolidation, an unrealized profit in the inventory is _____.

not included in the consolidated balance sheet even if the inventory is still on hand

Under....................... the method of accounting for investments, the parent company records dividends received from the subsidiary as income, but does not adjust unrealized profits arising out of intercompany transactions.

cost

In making the equity method journal entry to record a downstream transfer of inventory, Inventory is...........on the parent's books.

credit

In recording the consolidation journal entry to eliminate the unrealized gain on an upstream sale of land, Land is

credited

When preparing the optional accumulated depreciation consolidation entry, Plant Assets are

credited

While eliminating unrealized gross profit from an upstream intercompany transaction, the Investment in Subsidiary account is..............in the parent's equity method journal entry.

credited

In preparing the basic consolidation entry, the noncontrolling interest's share in the net assets of the subsidiary is

credited credit credit

For consolidation purposes, profits recorded on an intercorporate inventory sale are recognized in the period in which the inventory is

resold to an unrelated party.

In the equity method journal entry to defer unrealized gross profit from an intercompany transfer of inventory, the parent will.................the Income from Subsidiary account.

debit

Sales is..................in the consolidation entry to eliminate the overstatement of sales revenue arising from a parent company's transfer of goods to its subsidiary.

debit

A parent company sells inventory to its subsidiary at a profit and the inventory is held for more than one period. In the consolidation entry to restate the inventory to its original cost, the Investment in Subsidiary account is

debited

In eliminating unrealized gross profit resulting from an upstream intercompany transaction, the Income from Subsidiary account is....................in the parent's equity method journal entry.

debited

The consolidation entry to eliminate intercompany sales to an affiliate includes a..................to Sales.

debited

The amount of adjustment of depreciation expense due to an intercompany transfer during a period is equal to the _____.

difference between the depreciation recorded by the purchaser and the depreciation that would have been recorded by the seller

In the consolidation worksheet, the item that is affected by the unrealized profit on intercompany sales of inventory is _____.

inventory in balance sheet

The effect of the worksheet entry for unrealized profit on inventory in the year of sale to a nonaffiliate is that _____.

it reduces cost of goods sold

In a downstream intercompany sale of fixed assets, any profits or losses on the transfer accrue to the shareholders of the ..................company.

parent

The adjustment done through consolidation entries under modified equity method is _____.

reduce the NCI for its share of deferral of unrealized profit

Profits or losses on the intercompany sale of goods are considered realized for consolidation when

the goods are resold to an unrelated third party.

The consolidation of an unrealized intercompany profit reduces the interests of both the controlling and noncontrolling interests

until the inventory is resold to a nonaffiliate.

sale, the gains or losses on the asset transfer accrue to the subsidiary company's stockholders.

upstream


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