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Question;1.;Schiff Company owns 100% of the outstanding common;stock of the Viel Company. During 20X1, Schiff sold merchandise to Viel that;Viel, in turn, sold to unrelated firms. There were no such goods in Viel's;ending inventory. However, some of the intercompany purchases from Schiff had;not yet been paid. Which of the following amounts will be incorrect in the;consolidated statements if no adjustments are made?;a.;inventory, accounts payable, net income;b.;inventory, sales, cost of goods sold, accounts;receivable;c.;sales, cost of goods sold, accounts receivable;accounts payable.;d. accounts receivable;accounts payable;2.;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 entities.;d.;does not require a working paper adjustment if the;merchandise was transferred at cost.;23.;Williard Corporation regularly sells inventory items;to its subsidiary, Petty, Inc. If unrealized profits in Petty's 20X1 year-end;inventory exceed the unrealized profits in its 20X2 year-end inventory;combined;cost of sales will be less than consolidated cost of;sales in 20X2.;gross profit will be greater than consolidated gross;profit in 20X2.;sales will be less than consolidated sales in 20X2.;cost of sales will be greater than consolidated cost;of sales in 20X2.;Chapter 4;4.;Sally Corporation, an 80%-owned subsidiary of;Reynolds Company, buys half of its raw materials from Reynolds. The transfer;price is exactly the same price as Sally pays to buy identical raw materials;from outside suppliers and the same price as Reynolds sells the materials to;unrelated customers. In preparing consolidated statements for Reynolds Company;and Subsidiary;a. the;intercompany transactions can be ignored because the transfer price represents;arm's length bargaining.;b.;any unrealized profit from intercompany sales;remaining in Reynolds' ending inventory must be offset against the unrealized;profit in Reynolds' beginning inventory.;c. any;unrealized profit on the intercompany transactions in Sally's ending inventory;is eliminated in its entirety.;d. eighty;percent of any unrealized profit on the intercompany transactions in Sally's;ending inventory is eliminated.;5.;Cattle Company sold inventory with a cost of $40,000;to its 90%-owned subsidiary, Range Corp., for $100,000 in 20X1. Range resold;$75,000 of this inventory for $100,000 in 20X1. The amount of inventory;reported on the consolidated financial statements at the end of 20X1 is;a.;$10,000;b.;$18,000;c.;$21,000;d. $30,000;6.;Diller owns 80% of Lake Company common stock. During;October 20X7, Lake sold merchandise to Diller for $300,000. On December 31;20X7, one-half of this merchandise remained in Diller's inventory. For 20X7, gross;profit percentages were 30% for Diller and 40% for Lake. The amount of;unrealized profit in the ending inventory on December 31, 20X7 that should be;eliminated in consolidation is _______.;a.;$80,000;b.;$60,000;c.;$32,000;d. $30,000;7.;Perry, Inc. owns a 90% interest in Brown Corp.;During 20X6, Brown sold $100,000 in merchandise to Perry at a 30% gross profit.;Ten percent of the goods are unsold by Perry at year end. The noncontrolling;interest will receive what gross profit as a result of these sales?;a.;$0;b.;$2,700;c.;$3,000;d. $27,000;4-2;Chapter 4;8.;On January 1, 20X1 Bullock, Inc. sells land to its;80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is;still held by Humphrey on December 31, 20X3. What is the effect of the;intercompany sale of land on consolidated net income?;a.;Consolidated net income will be the same as it would;have been had the sale not occurred.;b.;Consolidated net income will be $20,000 less than it;would have been had the sale not occurred.;c.;Consolidated net income will be $16,000 less than it;would have been had the sale not occurred.;d.;Consolidated net income will be $20,000 greater than;it would have been had the sale not occurred.;9.;Emron Company owns a 100% interest in the common;stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset;that Dietz will use over a 5-year period. The asset was sold at a $5,000;profit. In the consolidated statements, this profit will;a.;not be recorded.;b.;be recognized over 5 years.;c.;be recognized in the year of sale.;d. be;recognized when the asset is resold to outside parties at the end of its period;of use.;10.;Pease Corporation owns 100% of Sade Corporation common;stock. On January 2, 20X6, Pease sold machinery with a carrying amount of;$30,000 to Sade for $50,000. Sade is depreciating the acquired machinery over a;5-year life using the straight-line method. The net adjustments to compute the;20X6 and 20X7 consolidated income before income tax would be an increase;(decrease) of;a.;20X6;20X7;$(16,000);$4,000;b.;$(16,000);$0;c.;$(20,000);$4,000;d. $(20,000);$0;11.;On January 1, 20X1, Poe Corp. sold a machine for;$900,000 to Saxe Corp., its wholly-owned subsidiary. Poe paid $1,100,000 for;this machine. On the sale date, accumulated depreciation was $250,000. Poe;estimated a $100,000 salvage value and depreciated the machine on the;straight-line method over 20 years, a policy that Saxe continued. In Poe's;December 31, 20X1, consolidated balance sheet, this machine should be included;in cost and accumulated depreciation as;Cost;Accumulated Depreciation;a.;$1,100,000;$300,000;b.;$1,100,000;$290,000;c.;$;900,000;$ 40,000;d. $;850,000;$ 42,500;4-3;Chapter 4;12.;Porch Company owns a 90% interest in the Screen;Company. Porch sold Screen a milling machine on January 1, 20X1, for $50,000;when the book value of the machine on Porch's books was $40,000. Porch financed;the sale with Screen signing a 3-year, 8% interest, note for the entire;$50,000. The machine will be used for 10 years and depreciated using the;straight-line method. The following amounts related to this transaction;were;located;on the;companies trial balances;Interest;Revenue;$4,000;Interest Expense;$4,000;Depreciation Expense;$5,000;Based upon;the information related to this transaction what will be the amounts eliminated;in preparing the consolidated financial statements?;a.;Interest Revenue;Interest Expense;Depreciation Expense;4,000;4,000;5,000;b.;4,000;4,000;1,000;c.;3,600;3,600;900;d.;3,600;3,600;4,500;13.;On 1/1/X1 Peck sells a machine with a $20,000 book;value to its subsidiary Shea for $30,000. Shea intends to use the machine for 4;years. On 12/31/X2 Shea sells the machine to an outside party for $14,000. What;amount of gain or (loss) for the sale of assets is reported on the consolidated;financial statements?;a.;loss of $6,000;b.;loss of $1,000;c.;gain of $4,000;d. gain of $14,000;14.;Stroud Corporation is an 80%-owned subsidiary of;Pennie, Inc., acquired by Pennie several years ago. On January 1, 20X2, Pennie;sold land with a book value of $60,000 to Stroud for $90,000. Stroud resold the;land to an unrelated party for $100,000 on September 26, 20X3. The land will be;included in the December 31, 20X2 consolidated balance sheet of Pennie, Inc.;and Subsidiary at _______.;a.;$48,000;b.;$60,000;c.;$72,000;d. $90,000;4-4;Chapter 4;15.;Stroud Corporation is an 80%-owned subsidiary of;Pennie, Inc., acquired by Pennie several years ago. On January 1, 20X2, Pennie;sold land with a book value of $60,000 to Stroud for $90,000. Stroud resold the;land to an unrelated party for $100,000 on September 26, 20X3. The gain from;sale of land that will appear in the consolidated income statements for 20X2;and 20X3, respectively, is _______.;a.;$0 and $10,000;b.;$0 and $40,000;c.;$30,000 and $10,000;d. $30,000 and $40,000;16.;Company P owns 100% of the common stock of Company;S. Company P is constructing an asset for Company S that will be used in;Company S's manufacturing operations over a 5-year period. The asset was 50%;complete at the end of 20X1 and was completed on December 31, 20X2. Company P;is recording the construction under the percentage of completion method. The;asset was put into use by Company S on January 1, 20X3. The profit on the asset;was estimated to be $50,000. Actual results complied to the estimate. On the;consolidated statements, the profit will appear as;20X1;20X2;20X3;20X4;- 20X7;a.;0;50,000;0;0;b.;25,000;25,000;0;0;c.;0;0;10,000;10,000;d.;0;0;50,000;0;17. The;following accounts were noted in reviewing the trial balance for Parent Co. and;Subsidiary Corp.;Assets under Construction Contracts Receivable;Billings on Construction in Progress Earned Income on Long-Term;Contracts Contracts Payable;Which of these accounts do you expect to eliminate when;producing Parent Co. consolidated financial statements?;a. Assets under;Construction, Billings on Construction in Progress, Earned Income on Long-Term;Contracts;b.;Contracts Receivable, Billings on Construction in;Progress, Earned Income on Long-Term Contracts;c.;Assets under Construction, Contracts Receivable;Billings on Construction in Progress, Earned Income on Long-Term Contracts;Contracts Payable;d.;Contracts Receivable, Billings on Construction in;Progress, Earned Income on Long-Term Contracts, Contracts Payable;4-5;Chapter 4;18.;During 20X3, a parent company billed its 100%-owned;subsidiary for computer services at the rate of $1,000 per month. At year end;one month's bill remained unpaid. As a part of the consolidation process, net;income;a.;should be reduced $12,000.;b.;should be reduced $1,000.;c.;needs no adjustment.;d. needs an;adjustment, but the amount is not provided by this information.;19.;On January 1, 20X1, a parent loaned $30,000 to its;100%-owned subsidiary on a 5-year, 8% note. The note requires a principal;payment at the end of each year of $6,000 plus payment of interest accrued to;date. The following accounts require adjustment in the consolidation process;Assets;Debt;Controlling;Retained;Earnings;a.;Yes;Yes;Yes;b.;No;No;Yes;c.;Yes;Yes;No;d. No;No;No;20. Phelps Co.;uses the sophisticated equity method to account for the 80% investment in its;subsidiary Shore Corp. Based upon the following;information what amount does Phelps;Co. record as subsidiary income?;Phelps internally;generated income;$250,000;Shore internally generated;income;$ 50,000;Intercompany profit on;Shore beginning inventory;$ 10,000;Intercompany profit on Shore ending;inventory;$;15,000;a. $50,000;b.;$44,000;c.;$40,000;d. $36,000


Paper#44361 | Written in 18-Jul-2015

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