Question 1

Why are adjustments required for intragroup transactions involving profits and losses on the transfer of property, plant and equipment in both the current and previous periods?

Accepted Answer

The answer of Why are adjustments required for intragroup transactions...

Question 2

On January 1, 2011, Rocker Ltd. formed Smith Co., a 100% owned subsidiary. During 2014, Rocker sold Smith $100,000 in goods. The unrealized profit in Smith's inventories was $20,000 at December 31, 2013 and $25,000 at December 31, 2014. Ignoring income taxes, what adjustment should be made to the consolidated financial statements for the year ended December 31, 2014 to reflect the unrealized profit in Smith's ending inventory?

Accepted Answer

A) Retained earnings at the end of 2014 will be decreased by $25,000. 
B) Inventory at December 31, 2014 will be increased by $25,000. 
C) Cost of goods sold for 2014 will be decreased by $25,000. 
D) Retained earnings at the end of 2014 will be decreased by $5,000.

Question 3

Bilson Ltd. is the wholly-owned subsidiary of Lawson Ltd. Bilson purchased all of Lawson's outstanding bond issue on the open market at a discount. The bonds have an unamortized premium attached. This transaction, in effect, retires the bond and results in a gain. How should the gain be shown?

Accepted Answer

A) It will appear on both Lawson's separate-entity and consolidated statements of comprehensive income. 
B) It will appear on Lawson's consolidated statement of comprehensive income only. 
C) It will be added to the value of the bonds payable on Lawson's statement of financial position. 
D) It will appear on Lawson's separate-entity statement of comprehensive income only.

Question 4

On June 30, 2013 Tulip Ltd. issued one hundred $1,000 bonds with an interest rate of 7% p.a. payable semi-annually on December 31 and June 30 of each year. Crockus Inc., a wholly-owned subsidiary of Tulip Ltd., acquired 75% of the bonds issued. What are some of the December 31, 2013 adjustments required in preparation for the consolidated financial statements?

Accepted Answer

A) Decrease Bonds Payable: $100,000, decrease Bond Investment: $100,000, decrease Interest Payable: $7,000, and decrease Interest Receivable: $7,000. 
B) Increase Bonds Payable: $100,000, increase Bond Investment: $100,000, increase Interest Payable: $7,000, and increase Interest Receivable: $7,000. 
C) Decrease Bonds Payable: $75,000, decrease Bond Investment: $75,000, decrease Interest Payable: $2,625, and decrease Interest Receivable: $2,625. 
D) Decrease Bonds Payable: $75,000, decrease Bond Investment: $75,000, decrease Interest Payable: $5,250, and decrease Interest Receivable: $5,250.

Question 5

In the consolidation of intragroup transactions in the current period consideration should be given to the effects of transactions in previous periods.

Accepted Answer

A) True 
 B)False

Question 6

A subsidiary sold a depreciable asset to the parent at a profit of $100 and the parent depreciates the assets on a straight-line basis over ten years. In year one after the sale, the realized profit is:

Accepted Answer

A) $100 
B) $ 90 
C) $ 110 
D) $50

Question 7

If a subsidiary declares a dividend and the dividend is unpaid at the end of the period, the adjustment on the consolidated financial statements will include an increase to dividend revenue.

Accepted Answer

A) True 
 B)False

Question 8

Why are adjustments made for intragroup transactions involving profits and losses in beginning and ending inventory?

Accepted Answer

The answer of Why are adjustments made for intragroup transactions...

Question 9

The parent company of subsidiaries that are owned less than 100% but more than 50% have the option of adjusting intragroup transactions and would make a statement to this effect only in the notes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

When the transferred assets are depreciable, subsequent adjustments are made to depreciation accounts.

Accepted Answer

A) True 
 B)False

Question 11

If a dividend is declared and paid by a subsidiary in the current period after its acquisition by the parent, from the outlook of the group:

Accepted Answer

A) No dividend has been paid. 
B) A dividend has been paid. 
C) A liability increases. 
D) Revenue has been received.

Question 12

Dividends from subsidiary equity are recognized as revenue by the subsidiary.

Accepted Answer

A) True 
 B)False

Question 13

Adjustments for intragroup dividends affect both the dividends declared by the subsidiary and those declared by the parent.

Accepted Answer

A) True 
 B)False

Question 14

On February 1, 2013 Smith Company sold inventory to its wholly owned subsidiary Orchid Ltd. for $10,000. These goods had previously cost $7,500. 75% of these goods were then sold by Orchid Ltd. for $15,000 by the February 28, 2013 year-end. What adjustments are required for the preparation of the consolidated financial statements? Ignore the effects of income taxes.

Accepted Answer

A) Decrease sales $10,000, decrease cost of goods sold $9,375 and decrease ending inventory $625. 
B) Increase sales $10,000, increase cost of goods sold $9,375 and increase ending inventory $625. 
C) Decrease sales $10,000, decrease cost of goods sold $7,500 and decrease ending inventory $2,500. 
D) Increase sales $10,000, increase cost of goods sold $7,500 and increase ending inventory $2,500.

Question 15

On January 1, 2012, Oliver Ltd. formed Solo Co., a 100% owned subsidiary. During 2014, Oliver sold Solo $200,000 in goods. The unrealized profit in Solo's inventories was $40,000 at December 31, 2013 and $50,000 at December 31, 2014. Ignoring income taxes, what adjustment should be made to the consolidated financial statements for the year ended December 31, 2014 to reflect the unrealized profit in Solo's beginning inventory?

Accepted Answer

A) Inventory at December 31, 2014 should be decreased by $40,000. 
B) Retained earnings at the end of 2014 should be increased by $40,000. 
C) Retained earnings at the end of 2014 should be decreased by $40,000. 
D) Cost of goods sold for 2014 should be decreased by $40,000.

Question 16

According to IFRS principles, revenues and expenses resulting from intragroup transactions that require consolidation adjustments are to be made as follows:

Accepted Answer

A) In the current period only. 
B) In the prior period. 
C) Recognized in assets only. 
D) None of the above.

Question 17

Quick Company owns all of the outstanding shares of Peanut Ltd. During the year, Peanut Ltd. declared and paid a dividend of $10,000. The tax rate is 30% for both entities. In preparation for the year-end consolidated financial statements, what are the consolidated financial statement adjustments required?

Accepted Answer

A) Decrease Dividend Revenue: $10,000, decrease Dividend Declared and Paid: $10,000, decrease Income Tax Expense: $3,000, and decrease Income Tax Payable: $3,000. 
B) Increase Dividend Revenue: $10,000, increase Dividend Declared and Paid: $10,000, increase Income Tax Expense: $3,000, and increase Income Tax Payable: $3,000. 
C) Decrease Dividend Revenue: $10,000, decrease Dividend Declared and Paid: $10,000. 
D) Increase Dividend Revenue: $10,000, increase Dividend Declared and Paid: $10,000.

Question 18

A Canadian company that has wholly owned subsidiaries in countries that do not follow GAAP/IFRS accounting principles is not required to make adjustments for intragroup transactions.

Accepted Answer

A) True 
 B)False

Question 19

In some intragroup transactions where there is management fee paid by one entity to another within the group there is no effect on the carrying amounts of assets and liabilities.

Accepted Answer

A) True 
 B)False

Question 20

A parent issues one thousand $100 bonds at an interest rate of 5% and its wholly owned subsidiary acquires half of the bond issue. These transactions result in:

Accepted Answer

A) Intragroup borrowings result in transactions being recorded as assets of one member of the group and a recording as liabilities of the other member only. 
B) Intragroup interest payments require entries in revenues of one member of the group and expenses in the other member of the group only. 
C) Intragroup borrowing and intragroup interest payments result in both assets and revenues being recorded in one member of the group and liabilities and expenses being recorded in the other member's books. 
D) These transactions need only be noted in the notes to the financial statements.

Exam 4: Consolidations: Intragroup Transactions

Why are adjustments required for intragroup transactions involving profits and losses on the transfer of property, plant and equipment in both the current and previous periods?

Bilson Ltd. is the wholly-owned subsidiary of Lawson Ltd. Bilson purchased all of Lawson's outstanding bond issue on the open market at a discount. The bonds have an unamortized premium attached. This transaction, in effect, retires the bond and results in a gain. How should the gain be shown?

In the consolidation of intragroup transactions in the current period consideration should be given to the effects of transactions in previous periods.

A subsidiary sold a depreciable asset to the parent at a profit of $100 and the parent depreciates the assets on a straight-line basis over ten years. In year one after the sale, the realized profit is:

If a subsidiary declares a dividend and the dividend is unpaid at the end of the period, the adjustment on the consolidated financial statements will include an increase to dividend revenue.

Why are adjustments made for intragroup transactions involving profits and losses in beginning and ending inventory?

The parent company of subsidiaries that are owned less than 100% but more than 50% have the option of adjusting intragroup transactions and would make a statement to this effect only in the notes to the financial statements.

When the transferred assets are depreciable, subsequent adjustments are made to depreciation accounts.

If a dividend is declared and paid by a subsidiary in the current period after its acquisition by the parent, from the outlook of the group:

Dividends from subsidiary equity are recognized as revenue by the subsidiary.

Adjustments for intragroup dividends affect both the dividends declared by the subsidiary and those declared by the parent.

According to IFRS principles, revenues and expenses resulting from intragroup transactions that require consolidation adjustments are to be made as follows:

A Canadian company that has wholly owned subsidiaries in countries that do not follow GAAP/IFRS accounting principles is not required to make adjustments for intragroup transactions.

In some intragroup transactions where there is management fee paid by one entity to another within the group there is no effect on the carrying amounts of assets and liabilities.

A parent issues one thousand $100 bonds at an interest rate of 5% and its wholly owned subsidiary acquires half of the bond issue. These transactions result in: