Exam 5: Consolidated Financial Statements - Intra-Entity Asset Transactions

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2010, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2010 and 2011, respectively. Leo uses the equity method to account for its investment. -Compute income from Stiller on Leo's books for 2010.

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. 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 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. -Compute the noncontrolling interest in the net income of Devin for 2010.

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, 2010. Purchases by Posito \ 8,000 \ 12,000 \ 15,000 Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income \ 70,000 \ 85,000 \ 94,000 Dividends paid by Gargiulo 10,000 10,000 15,000 -Compute the noncontrolling interest in Gargiulo's net income for 2012.

During 2011,Edwards Co.sold inventory to its parent company,Forsyth Corp.Forsyth still owned all of the inventory at the end of 2011.Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2011?

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012. -Compute income from Stark reported on Parker's books for 2010.

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset?

Bauerly Co.owned 70% of the voting common stock of Devin Co.During 2010,Devin made frequent sales of inventory to Bauerly.There were unrealized gains of $40,000 in the beginning inventory,and $25,000 at the end of the year.Devin reported net income of $137,000 for 2010.Bauerly decided to use the equity method to account for the investment.What is the noncontrolling interest's share of Devin's net income for 2010?

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute Wilson's share of income from Simon for consolidation for 2011.

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. 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 2010,which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2010, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2010, Stateside had sold 75% of the goods to outside parties for $420,000 cash. -Prepare the consolidation entries that should be made at the end of 2010.

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010. -In the consolidation worksheet for 2010,which of the following choices would be a credit entry to eliminate the intra-entity transfer of inventory?

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 noncontrolling interest?

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2010, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2010, Stateside had sold 75% of the goods to outside parties for $420,000 cash. -Prepare any 2011consolidation worksheet entries that would be required regarding the 2010 inventory transfer.

Dithers Inc.acquired all of the common stock of Bumstead Corp.on January 1,2011.During 2011,Bumstead sold land to Dithers at a gain.No consolidation entry for the sale of the land was made at the end of 2011.What errors will this omission cause in the consolidated financial statements?

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute the amortization of gain through a depreciation adjustment for 2012 for consolidation purposes.

Dalton Corp.owned 70% of the outstanding common stock of Shrugs Inc.On January 1,2009,Dalton acquired a building with a ten-year life for $420,000.No salvage value was anticipated and the building was to be depreciated on the straight-line basis.On January 1,2011,Dalton sold this building to Shrugs for $392,000.At that time,the building had a remaining life of eight years but still no expected salvage value.In preparing financial statements for 2011,how does this transfer affect the calculation of Dalton's share of consolidated net income?

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. -What is the net effect on consolidated net income in 2010 due to the equipment transfer?

Chain Co.owned all of the voting common stock of Shannon Corp.The corporations' balance sheets dated December 31,2010,include the following balances for land: for Chain--$416,000,and for Shannon--$256,000.On the original date of acquisition,the book value of Shannon's land was equal to its fair value.On April 4,2011,Chain sold to Shannon a parcel of land with a book value of $65,000.The selling price was $83,000.There were no other transactions which affected the companies' land accounts during 2010.What is the consolidated balance for land on the 2011 balance sheet?

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. -Compute Collins' share of Smeder's net income for 2011.

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. 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 2011,which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?