Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

REFERENCE: Ref.05_09 Stiller Company,an 80% owned subsidiary of Leo Company,purchased land from Leo on March 1,2009,for $75,000.The land originally cost Leo $60,000.Stiller reported net income of $125,000 and $140,000 for 2009 and 2010,respectively.Leo uses the equity method to account for its investment. -On a consolidation worksheet,having used the equity method,what adjustment would be made for 2010 regarding the land transfer?

Which of the following statements is true concerning an intercompany transfer of a depreciable asset?

REFERENCE: Ref.05_02 On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired. As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows: During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31. -What is the total of consolidated cost of goods sold?

REFERENCE: Ref.05_03 Strickland Company sells inventory to its parent,Carter Company,at a profit during 2009.Select the correct answer. -With regard to the intercompany sale,which of the following choices would be a credit entry in the consolidated worksheet for 2010?

REFERENCE: Ref.05_10 Stark Company,a 90% owned subsidiary of Parker,Inc. ,sold land to Parker on May 1,2009,for $80,000.the land originally cost Stark $85,000.Stark reported net income of $200,000,$180,000,and $220,000 for 2009,2010,and 2011,respectively.Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011. -Compute Parker's reported gain or loss relating to the land for 2011.

What is meant by unrealized inventory gains,and how are they treated on a consolidation worksheet?

REFERENCE: Ref.05_03 Strickland Company sells inventory to its parent,Carter Company,at a profit during 2009.Select the correct answer. -With regard to the intercompany sale,which of the following choices would be a debit entry in the consolidated worksheet for 2009?

REFERENCE: Ref.05_07 On April 1,2009 Wilson Company,a 90% owned subsidiary of Simon Company,bought equipment from Simon for $68,250.On January 1,2009,Simon realized that the useful life of the equipment was longer than originally anticipated,at ten remaining years.The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1,2009. The following data are available pertaining to Wilson's income and dividends: -Compute Simon's share of income from Wilson for consolidation for 2011.

REFERENCE: Ref.05_09 Stiller Company,an 80% owned subsidiary of Leo Company,purchased land from Leo on March 1,2009,for $75,000.The land originally cost Leo $60,000.Stiller reported net income of $125,000 and $140,000 for 2009 and 2010,respectively.Leo uses the equity method to account for its investment. -Compute the gain or loss on the intercompany sale of land.

REFERENCE: Ref.05_10 Stark Company,a 90% owned subsidiary of Parker,Inc. ,sold land to Parker on May 1,2009,for $80,000.the land originally cost Stark $85,000.Stark reported net income of $200,000,$180,000,and $220,000 for 2009,2010,and 2011,respectively.Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011. -Compute income from Stark reported on Parker's books for 2011.

REFERENCE: Ref.05_09 Stiller Company,an 80% owned subsidiary of Leo Company,purchased land from Leo on March 1,2009,for $75,000.The land originally cost Leo $60,000.Stiller reported net income of $125,000 and $140,000 for 2009 and 2010,respectively.Leo uses the equity method to account for its investment. -Compute income from Stiller on Leo's books for 2009.

Yukon Co.acquired 75% percent of the voting common stock of Ontario Corp.on January 1,2009.During the year,Yukon made sales of inventory to Ontario.The inventory cost Yukon $260,000 and was sold to Ontario for $390,000.Ontario still had $60,000 of the goods in its inventory at the end of the year.The amount of unrealized intercompany profit that should be eliminated in the consolidation process at the end of 2009 is

REFERENCE: Ref.05_13 Several years ago Polar Inc.purchased an 80% interest in Icecap Co.The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values.Polar paid an amount corresponding to the underlying book value of Icecap so that no allocations or goodwill resulted from the purchase price. The following selected account balances were from the individual financial records of these two companies as of December 31,2009: SHAPE \* MERGEFORMAT -Assume that Icecap sold inventory to Polar at a markup equal to 40% of cost.Intercompany transfers were $70,000 in 2008 and $112,000 in 2009.Of this inventory,$29,400 of the 2008 transfers were retained and then sold by Polar in 2009 whereas $49,000 of the 2009 transfers were held until 2010. Required: On the consolidated financial statements for 2009,determine the balances that would appear for the following accounts: (1)Cost of Goods Sold, (2)Inventory,and (3)Noncontrolling Interest in Subsidiary's Net Income.(If you use a gross profit percentage,do not round the calculation. )

What is the impact on the noncontrolling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?

REFERENCE: Ref.05_11 Pepe,Incorporated acquired 60% of Devin Company on January 1,2009.On that date Devin sold equipment to Pepe for $45,000.The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years.Devin reported net income of $300,000 and $325,000 for 2009 and 2010,respectively.Pepe uses the equity method to account for its investment in Devin. -What is the gain or loss on equipment reported by Devin for 2009?

REFERENCE: Ref.05_02 On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired. As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows: During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31. -What is the consolidated total for inventory at December 31,2009?

REFERENCE: Ref.05_02 On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired. As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows: During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31. -What is the total of consolidated operating expenses?

Parent sold land to its subsidiary for a gain in 2007.The subsidiary sold the land externally for a gain in 2010.Which of the following statements is true?

An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset.Which statement is true for the year following the sale?

Tara Company holds 80 percent of the common stock of Stodd Inc.In the current year,Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000.For the same period,Stodd has sales of $500,000 and cost of goods sold of $400,000.During the year,Stodd sold merchandise to Tara for $40,000 at a price based on the normal markup.At the end of the year,Tara still possesses 20 percent of this inventory.Prepare the consolidation entry to defer the unrealized gain.