Deck 9: Intercompany Inventory Transfers

Question 1

Intercompany inventory transfers at cost need not be eliminated in consolidation.

Answer 1

False

Question 2

Downstream intercompany inventory transfers at cost to a 100%-owned subsidiary need not be eliminated in consolidation.

Answer 2

False

Question 3

The concept of profit on intercompany transactions to be deferred for consolidated reporting purposes is gross profit.

Answer 3

True

Question 4

If intercompany profit is deferred for consolidated reporting purposes, then any income taxes recorded on that profit must also be deferred for consolidated reporting purposes.

Question 5

When a noncontrolling interest exists, intercompany sales on downstream intercompany inventory transfers need not be eliminated for consolidated reporting purposes.

Question 6

When a noncontrolling interest exists, intercompany sales on downstream intercompany inventory transfers need be eliminated only to the extent of the non-controlling interest ownership percentage-not 100%.

Question 7

Fractional elimination is not allowed under current GAAP.

Question 8

Under current GAAP, the amount of intercompany profit or loss to be deferred for consolidated reporting purposes is not affected by the existence of a noncontrolling interest.

Question 9

If an intercompany inventory transfer occurs in 2005 and all this inventory is not resold to an outside, third party until 2006, the intercompany sale is eliminated in consolidation in 2006-not 2005.

Question 10

If an intercompany inventory transfer occurs in late 2005 and all this inventory is not resold to an outside, third party until 2006, the intercompany sale is eliminated in consolidation in 2005-not 2006.

Question 11

If an intercompany inventory transfer occurs in late 2005 and all this inventory is not resold to an outside, third party until 2006, the intercompany sale is eliminated in consolidation in 2005 and 2006.

Question 12

_____ An intercompany inventory transfer above cost occurred in 2005. At 12/31/05, a portion of the transferred inventory remained unsold. Which of the following accounts would not require adjustment or elimination in consolidation at the end of 2005?

A) Intercompany Cost of Sales.
B) Intercompany Sales.
C) Inventory.
D) Sales.
E) None of the above.

Question 13

_____ In 2005, an intercompany inventory transfer above cost occurred. In 2006, all this inventory was resold to an outside party. Which of the following accounts would require adjustment or elimination in consolidation at 12/31/06?

A) Cost of Sales.
B) Intercompany Cost of Sales.
C) Intercompany Sales.
D) Inventory.
E) None of the above.

Question 14

_____ (Module 1) Which of the following accounts is a balance sheet account?

Question 15

_____ (Module 1) What is the normal general ledger balance in each of the following accounts, assuming that inventory transfers are above cost?

Question 16

_____ (Module 1) Which of the following general ledger accounts is not closed out in the year-end closing procedures?

A) Intercompany Profit Deferred.
B) Intercompany Profit Deferral.
C) Intercompany Profit Recognition.
D) Intercompany Cost of Sales.
E) None of the above.

Question 17

_____ (Module 1) Which of the following accounts is not eliminated (brought to a zero balance) in the consolidation process?

A) Intercompany Profit Deferral.
B) Intercompany Profit Deferred.
C) Intercompany Profit Recognition.
D) Dividends declared by the subsidiary as shown in the statement of retained earnings section of the worksheet (subsidiary column).
E) None of the above.

Question 18

_____ In 2005, Palex sold inventory costing $45,000 to its 100%-owned subsidiary, Salex, for $70,000. By 12/31/05, Salex had resold all this inventory for $100,000. Which of the following accounts would have to be eliminated in consolidation at 12/31/05?

Question 19

_____ In 2005, Polex sold inventory costing $100,000 to its 100%-owned subsidiary, Solex, for $150,000. At the end of 2005, Solex reported $60,000 of intercompany-acquired inventory in its balance sheet. What is the unrealized intercompany profit at 12/31/05?

A) $16,000
B) $20,000
C) $40,000
D) $50,000
E) None of the above.

Question 20

_____ In 2005, Paxco sold inventory for the first time to Saxco, its 100%-owned subsidiary. In consolidation at 12/31/05, the following entry was made:
What is the amount of intercompany acquired inventory reported in Saxco's balance sheet at 12/31/05?

A) $10,500
B) $15,000
C) $21,000
D) $36,000
E) None of the above.

Question 21

_____ In 2005, Palco sold inventory costing $70,000 to its 100%-owned subsidiary, Salco, for $110,000. At 12/31/05, $33,000 of this inventory was reported in Salco's balance sheet. In 2006, Salco resold this inventory for $55,000. Which of the following accounts is eliminated in consolidation at 12/31/06 as a result of the above transactions?

Question 22

_____ In 2005, Palco sold inventory costing $70,000 to its 100%-owned subsidiary, Salco, for $110,000. At 12/31/05, $33,000 of this inventory was reported in Salco's balance sheet. In 2006, Salco resold this inventory for $55,000. How much intercompany profit was realized in 2006-not 2005?

A) $12,000
B) $21,000
C) $33,000
D) $34,000
E) None of the above.

Question 23

_____ In 2005, Punco sold inventory costing $60,000 to its 100%-owned subsidiary, Sunco, for $100,000. At 12/31/05, $20,000 of this inventory was reported in Sunco's balance sheet. In 2006, Sunco resold this inventory for $30,000. What is the unrealized intercompany profit at 12/31/05?

A) $8,000
B) $10,000
C) $20,000
D) $30,000
E) None of the above.

Question 24

_____ In 2005, Pimco sold inventory costing $45,000 to its 100%-owned subsidiary, Simco, for $75,000. At 12/31/05, $15,000 of this inventory was reported in Simco's balance sheet. In 2006, Simco resold this inventory for $25,000. What is the unrealized intercompany profit at 12/31/05?

A) $6,000
B) $10,000
C) $16,000
D) $20,000
E) None of the above.

Question 25

_____ In 2006, Puzco resold for $70,000 inventory that it had acquired from its 100%-owned subsidiary, Suzco, in 2005 for $50,000. Suzco's cost was $36,000. In consolidation at the end of 2006, which of the following accounts is credited on the worksheet?

A) Intercompany Cost of Sales.
B) Equity in Net Income of Subsidiary.
C) Intercompany Sales.
D) Inventory.
E) None of the above.

Question 26

_____ In 2006, Semco resold for $40,000 inventory that it had acquired in 2005 from its parent company, Pemco, for $32,000. Pemco's cost was $25,000. In consolidation at the end of 2006, which of the following accounts is credited in consolidation?

A) Intercompany Cost of Sales for $32,000.
B) Inventory for $32,000.
C) Cost of Sales for $7,000.
D) Cost of Sales for $8,000.
E) None of the above.

Question 27

_____ At 12/31/06, Pozak reported $80,000 of intercompany-acquired inventory in its balance sheet. This inventory was acquired in 2005-not 2006-from its 100%-owned subsidiary, Sozak. Sozak's cost was $60,000. Which of the following accounts is credited in consolidation at 12/31/06?

A) Cost of Sales.
B) Intercompany Cost of Sales.
C) Retained Earnings.
D) Inventory.
E) None of the above.

Question 28

_____ In early 2005, Pye sold inventory costing $33,000 to its 100%-owned subsidiary, Slyce, for $44,000. At 12/31/05, Slyce made a lower-of-cost-or-market adjustment of $6,000 for this inventory, all of which was still on hand. What amount is reported for this inventory in the 12/31/05 consolidated balance sheet?

A) $11,000
B) $27,000
C) $33,000
D) $38,000
E) None of the above.

Question 29

_____ (Module 1) In 2005, Sandex, a 100%-owned subsidiary of Pandex, sold inventory costing $75,000 to Pandex for $120,000. At 12/31/05, Pandex reported $40,000 of this inventory in its balance sheet. For 2005, Sandex reported net income of $500,000, which includes the $45,000 of intercompany profit. In applying the equity method at 12/31/05, Pandex records which amount in its Equity in Net Income of Subsidiary account?

A) $380,000
B) $455,000
C) $460,000
D) $485,000
E) $500,000

Question 30

_____ (Module 2) Pakco sold inventory to its 100%-owned subsidiary, Sakco, in 2005 and 2006. At 12/31/05, $24,000 of intercompany profit was deferred in consolidation using the partial equity method. The related inventory was resold to an outside party in early 2006. At 12/31/06, $25,000 of intercompany profit was deferred in consolidation using the partial equity method. At 12/31/06,

A) Consolidated retained earnings are $25,000 more than the parent's retained earnings.
B) Consolidated retained earnings are $25,000 less than the parent's retained earnings.
C) Consolidated retained earnings are $1,000 more than the parent's retained earnings.
D) Consolidated retained earnings are 1,000 less than the parent's retained earnings.

Question 31

_____ (Module 2) Pageco sold inventory to its 100%-owned subsidiary, Sageco, in 2005 and 2006. At 12/31/05, $24,000 of intercompany profit was deferred in consolidation using the partial equity method. The related inventory was resold to an outside party in early 2006. At 12/31/06, $25,000 of intercompany profit was deferred in consolidation using the partial equity method. At 12/31/06,
a. Consolidated net income is $25,000 less than the parent's net income.
b. Consolidated net income is $25,000 more than the parent's net income.
c. Consolidated net income is $1,000 less than the parent's net income.
d. Consolidated net income is $1,000 more than the parent's net income.

Question 32

_____ (Module 1) In 2006, Pundax sold inventory above cost to Sundax, its 100%-owned subsidiary. At 12/31/06, $4,000 of unrealized intercompany profit existed. Which of the following entries is made in the general ledger at 12/31/06?

Question 33

_____ (Module 1) In 2006, Pundax sold inventory above cost to Sundax, its 100%-owned subsidiary. At 12/31/06, $4,000 of unrealized intercompany profit existed. Which of the following "postings" is made in consolidation at 12/31/06?

Question 34

_____ (Module 1) In 2005, Paxco sold inventory above cost to Saxco, its 100%-owned subsidiary. At 12/31/05, $3,000 of unrealized intercompany profit existed. In 2006, Saxco resold this inventory. Which of the following entries is made in the general ledger at 12/31/06 (not 05)?

Question 35

_____ (Module 1) In 2005, Paxco sold inventory above cost to Saxco, its 100%-owned subsidiary. At 12/31/05, $3,000 of unrealized intercompany profit existed. In 2006, Saxco resold this inventory. Which of the following "postings" is made in consolidation at 12/31/06 (not 05)?

Question 36

_____ In 2006, Panex sold inventory costing $100,000 to its 75%-owned subsidiary, Sanex, for $150,000. At 12/3106, Sanex reported $60,000 of intercompany-acquired inventory in its balance sheet. The amount by which the 2006 consolidated net income that accrues to the controlling interest will be lower as a result of this being an intercompany transaction is

A) $12,000
B) $15,000
C) $20,000
D) $37,500
E) None of the above.

Question 37

_____ In 2006, Pulco acquired inventory from its 75%-owned subsidiary, Sulco, for $250,000. Sulco's cost was $200,000. At 12/31/06, Pulco reported $40,000 of intercompany-acquired inventory in its balance sheet. The amount by which the 2006 consolidated net income that accrues to the controlling interest will be lower as a result of this being an intercompany transaction is

A) $6,000
B) $8,000
C) $30,000
D) $40,000
E) None of the above.

Question 38

_____ (Module 1) At 12/31/05, Pixco, which owns 60% of Sixco, reported intercompany acquired inventory of $18,000 in its balance sheet. Sixco's cost was $14,000. At 12/31/06-one year later-this inventory was still on hand. Which entry is made in consolidation at 12/31/06?

Question 39

_____ (Module 1) At 12/31/05, Pixco, which owns 60% of Sixco, reported intercompany acquired inventory of $18,000 in its balance sheet. Sixco's cost was $14,000. In 2007--two years later--this inventory was resold to outside third parties. Which entry is made in consolidation at 12/31/07?

Question 40

_____ (Module 1) In 2006, Sundax (a 75% owned subsidiary) sold inventory above cost to Pundax, its parent. At 12/31/06, $4,000 of unrealized intercompany profit existed. Which of the following entries is made in the general ledger at 12/31/06?

Question 41

_____ (Module 1) In 2006, Sundax (a 75% owned subsidiary) sold inventory above cost to Pundax, its parent. At 12/31/06, $4,000 of unrealized intercompany profit existed. Which of the following "postings" is made in consolidation at 12/31/06?

Question 42

_____ In its consolidated 2006 financial statements, Pozak recognized $37,000 of intercompany profit relating to upstream inventory sales from its 75%-owned subsidiary (Sozak). Of this amount, $7,000 pertained to intercompany profit deferred at 12/31/05. During 2006, downstream intercompany sales totaled $100,000 (Pozak's cost was $60,000). What amount was credited to Inventory in consolidation at 12/31/06? (Hint: Prepare the analysis of unrealized profit for the 2006 transfers-this is possible from the information given.)

A) $ -0-.
B) $7,000
C) $10,000
D) $30,000
E) None of the above.

Question 43

_____ In 2006, Semco resold for $55,000 inventory that it had acquired in 2005 from its parent, Pemco, for $30,000. Pemco's cost was $40,000. Which account is credited in consolidation at 12/31/06?

A) Intercompany Cost of Sales for $40,000.
B) Inventory for $10,000.
C) Cost of Sales for $10,000.
D) Cost of Sales for $15,000.
E) None of the above.

Question 44

Complete the following analysis and prepare the related consolidation entry:

Question 45

Complete the following analysis and prepare the related consolidation entry:

Question 46

(Module 1) Pazda sold inventory costing $40,000 to its 100%-owned subsidiary, Sazda, for $100,000 in 2006. Sazda resold $70,000 of this inventory for $130,000 in 2006. Sazda reported $300,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at the end of 2006 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 47

(Module 2) Pazda sold inventory costing $40,000 to its 100%-owned subsidiary, Sazda, for $100,000 in 2006. Sazda resold $70,000 of this inventory for $130,000 in 2006.
Required:
Prepare the consolidation entry or entries required at 12/31/06 under the partial equity method.

Question 48

(Module 1) Pedco sold inventory costing $120,000 to its 80%-owned subsidiary, Sedco, for $150,000 in 2006. Sedco resold most of this inventory for $210,000 in 2005. At 12/31/06, Sedco's balance sheet showed intercompany-acquired inventory on hand of $35,000. Sedco reported $500,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at the end of 2006 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 49

(Module 2) Pedco sold inventory costing $120,000 to its 80%-owned subsidiary, Sedco, for $150,000 in 2006. Sedco resold most of this inventory for $210,000 in 2006. At 12/31/06, Sedco's balance sheet showed intercompany-acquired inventory on hand of $35,000.
Required:
Prepare the consolidation entry or entries required at 12/31/06 under the partial equity method.

Question 50

(Module 1) In 2006, Salco (a 100%-owned subsidiary of Palco) resold for $66,000 inventory that it had acquired from Palco in 2005 for $40,000. Palco's cost was $23,000. Salco reported $200,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at the end of 2006 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 51

(Module 2) In 2006, Salco (a 100%-owned subsidiary of Palco) resold for $66,000 inventory that it had acquired from Palco in 2005 for $40,000. Palco's cost was $23,000.
Required:
Prepare the consolidation entry or entries required at 12/31/06 under the partial equity method.

Question 52

(Module 1) In 2006, Puncor resold for $77,000 inventory that it had acquired from Suncor (an 80%-owned subsidiary) in 2005 for $55,000. Suncor's cost was $44,000. Suncor reported $500,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at the end of 2006 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 53

(Module 2) In 2007, Puncor resold for $77,000 inventory that it had acquired from Suncor (an 80%-owned subsidiary) in 2006 for $55,000. Suncor's cost was $44,000.
Required:
Prepare the consolidation entry or entries required at 12/31/07 under the partial equity method.

Question 54

(Module 1) In 2005, Sondex, an 80%-owned subsidiary of Pondex, sold inventory to Pondex for $500,000, which includes a markup of 25% on Sondex's cost. At 12/3105, Pondex reported $80,000 of this inventory in its balance sheet. (This inventory was resold in 2006 by Pondex.) In 2006, Sondex sold to Pondex for $800,000 inventory that cost $600,000, of which $640,000 was resold by 12/31/06. Sondex reported $750,000 of net income for 2006.
Required:
a. Prepare the general ledger entry or entries at 12/31/06 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 55

(Module 2) In 2005, Sondex, an 80%-owned subsidiary of Pondex, sold inventory to Pondex for $500,000, which includes a markup of 25% on Sondex's cost. At 12/31/05, Pondex reported $80,000 of this inventory in its balance sheet. (This inventory was resold in 2006 by Pondex.) In 2006, Sondex sold to Pondex for $800,000 inventory that cost $600,000, of which $640,000 was resold by 12/31/06. Sondex reported $750,000 of net income for 2006.
Required:
Prepare the consolidation entry or entries required at 12/31/06 under the partial equity method.

Question 56

Equity Method Consolidation Worksheet (MODULE 1)
Complete the following consolidation worksheet assuming that Pubco (1) uses the equity method, (2) all intercompany inventory on hand at 12/31/06 (totaling $21,000) was resold by Subco in 2007 for $31,000. Make year-end adjusting entries in the Pubco or Subco column, as necessary. Show analyses at bottom of this sheet.

Question 57

In preparing combined financial statements, which of the following accounts are eliminated (brought to a zero balance) in the combining process?

Question 58

In the year end general ledger closing procedures, which accounts are closed in arriving at Cost of Sales?

Question 59

The general ledger entry to adjust the Intracompany Profit Deferred account at the end of an accounting period

A) Is reversed in the following accounting period.
B) Is reversed in the combining process.
C) Results in an entry in the combining process that is essentially a reclassification entry.
D) Results in the Intracompany Profit Deferred account being reduced to a zero balance in the combined column of the combining statement worksheet.
E) None of the above.

Question 60

In 2006, a home office shipped inventory costing $60,000 to its branch for $90,000. At the end of 2006, the branch reported $30,000 of this inventory in its balance sheet. The amount of unrealized intracompany profit at the end of 2006 is

A) $10,000
B) $15,000
C) $25,000
D) $30,000
E) None of the above.

Question 61

In 2006, a branch sold inventory it had acquired from its home office in 2005 at a markup of $8,000. Which entry is required in the combining statement worksheet in 2006?

Question 62

A home office ships inventory costing $40,000 to its branch at a transfer price of $50,000. The markup percentage (rounded) using the branch's cost basis is

A) 0.20
B) 0.25
C) 20
D) 25
E) None of the above.

Question 63

In 2006, a home office shipped inventory costing $400,000 to its newly established branch at a transfer price of $480,000. In the branch's year-end closing entries, the branch charged $360,000 of this inventory to Cost of Sales. The adjusted general ledger balance in the Intracompany Profit Deferred account at year-end should be

A) $3,333
B) $10,000
C) $20,000
D) $30,000
E) None of the above.

Question 64

For the year ended 12/31/06, the adjusted financial statements of a home office and its branch show net income of $700,000 and $100,000, respectively. At the end of 2005, the home office adjusted the Intracompany Profit Deferred account by debiting it for $40,000, leaving a balance of $10,000. The combined net income for 2006 is

A) $660,000
B) $690,000
C) $700,000
D) $800,000
E) None of the above.

Question 65

For the year ended 12/31/06, selected line items from the home office and branch columns of the combining statement worksheet follow:
What amount would be reported in the combined column for Cost of Sales?

A) $570,000
B) $580,000
C) $594,000
D) $600,000
E) $620,000

Question 66

For the year ended 12/31/06, selected line items from the home office and branch columns of the combining statement worksheet follow:
What is the combined net income as reported in the combined column?

A) $150,000
B) $160,000
C) $180,000
D) $204,000
E) $210,000