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Adv. Acct. Ch. 6

Terms in this set (17)

Sales from one subsidiary to another are called
a. downstream sales.
b. upstream sales.
c. intersubsidiary sales.
d. horizontal sales
D - Horizontal Sales
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 - Downstream Sales
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 - Cost of Sales
Pratt Company owns 80% of Storey Company's common stock. During 20
11, Storey sold $400,000of merchandise to Pratt. At December 31, 2011, one-fourth of the merchandise remained in Pratt's inventory. In 2011, gross profit percentages were 25% for Pratt and 30% for Storey. 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 - $30,000
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 - Partial Elimination
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 Shee
C - Debit to Ending Inventory (cost of sales)
Perez Company acquired an 80% interest in Seaman Company in 2010. In 2011 and 2012, Sutton reported net income of $400,000 and $480,000, respectively. During 2011, Seaman sold $80,000 of merchandise to Perez for a $20,000 profit. Perez sold the merchandise to outsiders during 2012 for$140,000. For consolidation purposes, what is the noncontrolling interest's share of Seaman's 2011and 2012 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 - $76,000 and $100,000
A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2010.Under the partial equity method, the workpaper entry in 2011 to recognize the intercompany profit in beginning inventory realized during 2011 includes a debit to
a. Retained Earnings - P.
b. Noncontrolling interest.
c. Cost of Sales.
d. both Retained Earnings - P and Noncontrolling Interest
D - Both retained earnings - P and Noncontrolling Interest
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 - Less unrealized profit in ending inventory plus realized profit in beginning inventory
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 - Be eliminated in full
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 - $12,000
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 - Does not result in consolidate income until the merchandise is sold to outside parties
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 - The subsidiary's net income times 20%
P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to fair value. During 2011, 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, 2011. S reported net income of $120,000 for 2011. P's income from S for 2011 is:
a. $36,000.
b. $50,400.
c. $54,000.
d. $61,200.
C - $54,000
The amount of intercompany profit eliminated is the same under total elimination and partial elimination in the case of
1. upstream sales where the selling affiliate is a less than wholly owned subsidiary.
2. all downstream sales.
3. horizontal sales where the selling affiliate is a wholly owned subsidiary.
a. 1.
b. 2.
c. 3.
d. both 2 and 3
D - Both 2 and 3
Paige, Inc. owns 80% of Sigler, Inc. During 2011, Paige sold goods with a 40% gross profit to Sigler. Sigler sold all of these goods in 2011. For 2011 consolidated financial statements, how should the summation of Paige and Sigler income statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany sales.
b. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
c. Net income should be reduced by 80% of the gross profit on intercompany sales.
d. No adjustment is necessary.
A - Sales and COGS should be reduced by intercompany sales
P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to fair value. During 2011, P sold merchandise that cost $225,000 to S for $315,000. One-third of this merchandise remained in S's inventory at December 31, 2011. S reported net income of $200,000 for 2011. P's income from S for 2011 is:
a. $60,000.
b. $90,000.
c. $120,000.
d. $102,000.
C - $120,000
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