Question 1

Why do intra-entity transfers between the component companies of a business combination occur so frequently?

Accepted Answer

One reason for the significant volume an

Question 2

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2012. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher.
In the consolidation worksheet for 2012, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?

Accepted Answer

A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Fisher Company. 
E)  Sales. 
A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Fisher Company. 
E)  Sales.

Question 3

During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned the entire inventory purchased at the end of 2013. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2013?

Accepted Answer

A sale of inventory by a subsidiary to i

Question 4

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute Stark's reported gain or loss relating to the land for 2014.

Accepted Answer

A)  $5,000 loss. 
B)  $5,000 gain. 
C)  $7,000 loss. 
D)  $7,000 gain. 
E)  $0. 
A)  $5,000 loss. 
B)  $5,000 gain. 
C)  $7,000 loss. 
D)  $7,000 gain. 
E)  $0.

Question 5

Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the initial value method to account for this investment. During 2013, Strayten sold Quint goods which had cost $48,000. The selling price was $64,000. Quint still had one-eighth of the goods purchased from Strayten on hand at the end of 2013.
Required:
Prepare Consolidation Entry *G, which would have to be recorded at the end of 2013.

Accepted Answer

The answer of Strayten Corp. is a wholly owned subsidiary...

Question 6

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.   Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  
Compute the non-controlling interest in Gargiulo's net income for 2012.

Accepted Answer

A)  $6,970. 
B)  $7,000. 
C)  $7,030. 
D)  $6,270. 
E)  $6,230. 
A)  $6,970. 
B)  $7,000. 
C)  $7,030. 
D)  $6,270. 
E)  $6,230.

Question 7

Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2013, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the goods at year-end. For 2013, cost of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for 2013?

Accepted Answer

A)  $6,600,000. 
B)  $6,604,000. 
C)  $5,620,000. 
D)  $5,596,000. 
E)  $5,625,000. 
A)  $6,600,000. 
B)  $6,604,000. 
C)  $5,620,000. 
D)  $5,596,000. 
E)  $5,625,000.

Question 8

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the equity method to account for its investment.
Compute income from Stiller on Leo's books for 2012.

Accepted Answer

A)  $110,000. 
B)  $100,000. 
C)  $125,000. 
D)  $85,000. 
E)  $88,000. 
A)  $110,000. 
B)  $100,000. 
C)  $125,000. 
D)  $85,000. 
E)  $88,000.

Question 9

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. 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 2012 and 2013, respectively. Pepe uses the equity method to account for its investment in Devin.
Compute the non-controlling interest in the net income of Devin for 2013.

Accepted Answer

A)  $126,800. 
B)  $130,000. 
C)  $122,000. 
D)  $130,800. 
E)  $129,600. 
A)  $126,800. 
B)  $130,000. 
C)  $122,000. 
D)  $130,800. 
E)  $129,600.

Question 10

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.   Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  
For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012 consolidation worksheet entry with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?

Accepted Answer

A)  $0. 
B)  $1,600. 
C)  $300. 
D)  $240. 
E)  $270. 
A)  $0. 
B)  $1,600. 
C)  $300. 
D)  $240. 
E)  $270.

Question 11

Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land externally for a gain in 2013. Which of the following statements is true?

Accepted Answer

A)  A gain will be reported in the consolidated income statement in 2010. 
B)  A gain will be reported in the consolidated income statement in 2013. 
C)  No gain will be reported in the 2013 consolidated income statement. 
D)  Only the parent company will report a gain in 2013. 
E)  The subsidiary will report a gain in 2010. 
A)  A gain will be reported in the consolidated income statement in 2010. 
B)  A gain will be reported in the consolidated income statement in 2013. 
C)  No gain will be reported in the 2013 consolidated income statement. 
D)  Only the parent company will report a gain in 2013. 
E)  The subsidiary will report a gain in 2010.

Question 12

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale?

Accepted Answer

A)  A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer. 
B)  A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. 
C)  A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method. 
D)  A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment. 
E)  No worksheet entry is necessary. 
A)  A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer. 
B)  A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. 
C)  A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method. 
D)  A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment. 
E)  No worksheet entry is necessary.

Question 13

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. 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 2012 and 2013, respectively. Pepe uses the equity method to account for its investment in Devin.
What is the consolidated gain or loss on equipment for 2012?

Accepted Answer

A)  $0. 
B)  $9,000 gain. 
C)  $9,000 loss. 
D)  $21,000 gain. 
E)  $21,000 loss. 
A)  $0. 
B)  $9,000 gain. 
C)  $9,000 loss. 
D)  $21,000 gain. 
E)  $21,000 loss.

Question 14

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.   Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  
Compute the equity in earnings of Gargiulo reported on Posito's books for 2013.

Accepted Answer

A)  $76,500. 
B)  $77,130. 
C)  $75,870. 
D)  $75,600. 
E)  $75,800. 
A)  $76,500. 
B)  $77,130. 
C)  $75,870. 
D)  $75,600. 
E)  $75,800.

Question 15

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

Accepted Answer

A)  A worksheet entry is made with a debit to gain for a downstream transfer. 
B)  A worksheet entry is made with a debit to gain for an upstream transfer. 
C)  A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method. 
D)  A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment. 
E)  No worksheet entry is necessary. 
A)  A worksheet entry is made with a debit to gain for a downstream transfer. 
B)  A worksheet entry is made with a debit to gain for an upstream transfer. 
C)  A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method. 
D)  A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment. 
E)  No worksheet entry is necessary.

Question 16

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.   Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  
For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2013 consolidation worksheet entry with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?

Accepted Answer

A)  $240. 
B)  $300. 
C)  $2,000. 
D)  $1,600. 
E)  $270. 
A)  $240. 
B)  $300. 
C)  $2,000. 
D)  $1,600. 
E)  $270.

Question 17

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute the gain or loss relating to the land that will be reported in consolidated net income for 2014.

Accepted Answer

A)  $5,000 loss. 
B)  $7,000 gain. 
C)  $12,000 gain. 
D)  $7,000 loss. 
E)  $12,000 loss. 
A)  $5,000 loss. 
B)  $7,000 gain. 
C)  $12,000 gain. 
D)  $7,000 loss. 
E)  $12,000 loss.

Question 18

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

Accepted Answer

A)  Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. 
B)  Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. 
C)  Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest. 
D)  Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest. 
E)  Income from subsidiary will be the same for upstream and downstream profits. 
A)  Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. 
B)  Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. 
C)  Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest. 
D)  Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest. 
E)  Income from subsidiary will be the same for upstream and downstream profits.

Question 19

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2012, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?

Accepted Answer

A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Strickland Company. 
E)  Sales. 
A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Strickland Company. 
E)  Sales.

Question 20

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

Accepted Answer

A)  Proportionately over a designated period of years. 
B)  When Wood Co. sells the land to a third party. 
C)  No gain can be recognized. 
D)  As Wood uses the land. 
E)  When Wood Co. begins using the land productively. 
A)  Proportionately over a designated period of years. 
B)  When Wood Co. sells the land to a third party. 
C)  No gain can be recognized. 
D)  As Wood uses the land. 
E)  When Wood Co. begins using the land productively.

Why do intra-entity transfers between the component companies of a business combination occur so frequently?

During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned the entire inventory purchased at the end of 2013. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2013?

Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land externally for a gain in 2013. Which of the following statements is true?

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale?

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

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

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Exam 5: Consolidated Financial Statements Intra-Entity Asset Transactions

Why do intra-entity transfers between the component companies of a business combination occur so frequently?

During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned the entire inventory purchased at the end of 2013. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2013?

Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land externally for a gain in 2013. Which of the following statements is true?

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale?

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

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters