Question 1

Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9, respectively.
-Based on the preceding information,the amount to be reported as consolidated net income for 20X9 will be:

Accepted Answer

A)  $207,000. 
B)  $202,000. 
C)  $212,000. 
D)  $190,000.

Question 2

Hilldale Corporation purchased land on January 1, 20X0, for $60,000. On August 7, 20X2, it sold the land to its subsidiary, Allen Corporation, for $35,000. Hilldale owns 60 percent of Allen's voting shares
-Based on the preceding information,what will be the worksheet consolidation entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X2?

Accepted Answer

A)  
B)  
C)  
D)

Question 3

Hilldale Corporation purchased land on January 1, 20X0, for $60,000. On August 7, 20X2, it sold the land to its subsidiary, Allen Corporation, for $35,000. Hilldale owns 60 percent of Allen's voting shares
-Based on the preceding information,what will be the worksheet consolidation entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X3?

Accepted Answer

A)  
B)  
C)  
D)

Question 4

A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:

Accepted Answer

A)  unrealized in the second year from upstream sales made in the second year. 
B)  realized in the second year from downstream sales made in both years. 
C)  realized in the second year from upstream sales made in both years. 
D)  both realized and unrealized from upstream sales made in the second year.

Question 5

Neptune Corporation owns 70 percent of Pluto Company's stock. On July 1, 20X4, Neptune sold a piece of equipment to Pluto for $56,350. Neptune had purchased this equipment on January 1, 20X1, for $63,000. The equipment's original 15-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible.
-Based on the information provided,in the preparation of the 20X5 consolidated income statement,depreciation expense will be

Accepted Answer

A)  debited for $350 in the consolidation entries. 
B)  credited for $350 in the consolidation entries. 
C)  debited for $700 in the consolidation entries. 
D)  credited for $700 in the consolidation entries.

Question 6

Big Corporation receives management consulting services from its 92 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported net income of $695,000.
-Based on the preceding information,what amount of receivable/payable should be eliminated in the 20X8 consolidated financial statements?

Accepted Answer

A)  $125,432 
B)  $7,900 
C)  $5,560 
D)  $140,000

Question 7

Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company.Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Snoopy Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Snoopy Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9:
Snoopy Co.sold equipment to Peanut Co.for a $42,000 gain on December 31,20X8.Snoopy Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Peanut Co.estimated that the equipment still had a seven-year remaining useful life.
Peanut sold land costing $90,000 to Snoopy Company on June 28,20X9,for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Peanut Co.uses the cost method to account for its investment in Snoopy Company.
Problem 57 (continued):

Accepted Answer

The answer of Peanut Company acquired 75 percent of Snoopy...

Question 8

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.
-Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:

Accepted Answer

A)  Debited for $40,000 in the consolidating entries. 
B)  Credited for $10,000 in the consolidating entries. 
C)  Debited for $10,000 in the consolidating entries. 
D)  Credited for $40,000 in the consolidating entries.

Question 9

Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9, respectively.
-Based on the preceding information,the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8 will be:

Accepted Answer

A)  $190,000. 
B)  $170,000. 
C)  $175,000. 
D)  $150,000.

Question 10

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies:
  Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?

Accepted Answer

A)  $110,000 
B)  $474,000 
C)  $525,000 
D)  $635,000

Question 11

ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
-Based on the preceding information,what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X8?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 12

Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9, respectively.
-Based on the preceding information,the amount to be reported as consolidated net income for 20X8 will be:

Accepted Answer

A)  $190,000. 
B)  $170,000. 
C)  $175,000. 
D)  $150,000.

Question 13

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
 
-Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X8?

Accepted Answer

A)  $145,000 
B)  $220,000 
C)  $197,000 
D)  $160,000

Question 14

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
 
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8?

Accepted Answer

A)  $369,400 
B)  $405,000 
C)  $465,000 
D)  $60,000

Question 15

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.
-Based on the preceding information,in the preparation of the 20X8 consolidated financial statements,equipment will be:

Accepted Answer

A)  debited for $50,000. 
B)  debited for $40,000. 
C)  credited for $70,000. 
D)  debited for $25,000.

Question 16

Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9, respectively.
-Based on the preceding information,the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X9 will be:

Accepted Answer

A)  $207,000. 
B)  $202,000. 
C)  $212,000. 
D)  $190,000.

Question 17

Big Corporation receives management consulting services from its 92 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported net income of $695,000.
-Based on the preceding information,what amount of consolidated net income should be reported in 20X8?

Accepted Answer

A)  $3,262,000 
B)  $4,050,000 
C)  $3,254,100 
D)  $3,122,000

Question 18

Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible.
-Based on the information provided,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:

Accepted Answer

A)  debited for $750 in the consolidating entries. 
B)  credited for $750 the consolidating entries. 
C)  credited for $1500 in the consolidating entries. 
D)  debited for $1500 in the consolidating entries.

Question 19

Which worksheet consolidation entry will be made on December 31,20X3,if Allen Corporation had initially purchased the land for $60,000 and then sold it to Hilldale on August 7,20X2,for $35,000?

Accepted Answer

A)  
B)  
C)  
D)

Question 20

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.
-Based on the preceding information,in the preparation of consolidation entries related to the equipment transfer for the 20X8 consolidated financial statements,net effect on accumulated depreciation will be:

Accepted Answer

A)  a decrease of $50,000. 
B)  an increase of $110,000. 
C)  an increase of $120,000. 
D)  a decrease of $160,000.

Exam 7: Intercompany Transfers of Services and Noncurrent Assets

A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:

Which worksheet consolidation entry will be made on December 31,20X3,if Allen Corporation had initially purchased the land for $60,000 and then sold it to Hilldale on August 7,20X2,for $35,000?