Question 1

Pine Company,a computer manufacturer,owns 90% of the outstanding stock of Slider Company.On January 1,2017,Pine sold computers to Slider for $500,000.The computers,which are inventory to Pine,had a cost to Pine of $350,000.Slider Company estimated that the computers had a useful life of six years from the date of purchase.
Slider Company reported net income of $310,000,and Pine Company reported net income of $870,000 from its independent operations (including sales to affiliates)for the year ended December 31,2017.
Required:
A.Prepare in general journal form the workpaper entries necessary because of the intercompany sales in the consolidated statements workpaper for both 2017 and 2018.
B.Calculate controlling interest in consolidated net income for 2017.

Accepted Answer

The answer of Pine Company,a computer manufacturer,owns 90% of the...

Question 2

In the year a subsidiary sells land to its parent company at a gain,a workpaper entry is made debiting:

Accepted Answer

A)  Retained Earnings - P Company
B)  Retained Earnings - S Company
C)  Gain on Sale of Land
D)  both Retained Earnings - P Company and Retained Earnings - S Company C

Question 3

Prince Company owns 104,000 of the 130,000 shares outstanding of Serf Corporation.Serf Corporation sold equipment to Prince Company on January 1,2017 for $740,000.The equipment was originally purchased by Serf Corporation on January 1,2016 for $1,280,000 and at that time its estimated depreciable life was 8 years.The equipment is estimated to have a remaining useful life of four years on January 1,2017.Both companies use the straight-line method to depreciate equipment.In 2018 Prince Company reported net income from its independent operations of $3,270,000,and Serf Corporation reported net income of $820,000 and declared dividends of $60,000.Prince Company uses the cost method to record the investment in Serf Company.
Required:
A.Prepare,in general journal form,the workpaper entries relating to the intercompany sale of equipment that are necessary in the December 31,2018 consolidated financial statements workpapers.
B.Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2018.
C.Calculate controlling interest in consolidated net income for 2018.

Accepted Answer

The answer of Prince Company owns 104,000 of the 130,000...

Question 4

When there have been intercompany sales of depreciable property,workpaper entries are necessary to accomplish several financial reporting objectives.Identify three of these financial reporting objectives for depreciable property.

Accepted Answer

The answer of When there have been intercompany sales of...

Question 5

When preparing consolidated financial statement workpapers,unrealized intercompany gains,as a result of equipment or inventory sales by affiliates,are allocated proportionately by percent of ownership between parent and subsidiary only when the selling affiliate is:

Accepted Answer

A)  the parent and the subsidiary is less than wholly owned.
B)  a wholly owned subsidiary.
C)  the subsidiary and the subsidiary is less than wholly owned.
D)  the parent of a wholly owned subsidiary.

Question 6

On January 1,2017,Pharma Company purchased equipment from its 80%-owned subsidiary for $2,400,000.On the date of the sale,the carrying value of the equipment on the books of the subsidiary company was $1,800,000.The equipment had a remaining useful life of six years on January 2017.On January 1,2018,Pharma Company sold the equipment to an outside party for $2,200,000.
Required:
A.Prepare,in general journal form,the entries necessary in 2017 and 2018 on the books of Pharma Company to account for the purchase and sale of the equipment.
B.Determine the consolidated gain or loss on the sale of the equipment and prepare,in general journal form,the entry necessary on the December 31,2018 consolidated statements workpaper to properly reflect this gain or loss.

Accepted Answer

The answer of On January 1,2017,Pharma Company purchased equipment from...

Question 7

Petunia Company owns 100% of Sage Corporation.On January 1,2017 Petunia sold equipment to Sage at a gain.Petunia had owned the equipment for four years and used a ten-year straight-line rate with no residual value.Sage is using an eight-year straight-line rate with no residual value.In the consolidated income statement,Sage's recorded depreciation expense on the equipment for 2017 will be reduced by:

Accepted Answer

A)  10% of the gain on sale.
B)  12 1/2% of the gain on sale.
C)  80% of the gain on sale.
D)  100% of the gain on sale.

Question 8

In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain,the noncontrolling interest in consolidated income is computed by multiplying the noncontrolling interest percentage by the subsidiary's reported net income:

Accepted Answer

A)  minus the net amount of unrealized gain on the intercompany sale.
B)  plus the net amount of unrealized gain on the intercompany sale.
C)  minus intercompany gain considered realized in the current period.
D)  plus intercompany gain considered realized in the current period.

Question 9

The amount of the adjustment to the noncontrolling interest in consolidated net assets is equal to the noncontrolling interest's percentage of the:

Accepted Answer

A)  unrealized intercompany gain at the beginning of the period.
B)  unrealized intercompany gain at the end of the period.
C)  realized intercompany gain at the beginning of the period.
D)  realized intercompany gain at the end of the period.

Question 10

On January 1,2016,Pound Company acquired an 80% interest in the common stock of Sound Company on the open market for $3,000,000,the book value at that date.
On January 1,2017,Pound Company purchased new equipment for $58,000 from Sound Company.The equipment cost $36,000 and had an estimated life of five years as of January 1,2017.
During 2018,Pound Company had merchandise sales to Sound Company of $400,000; the merchandise was priced at 25% above Pound Company's cost.Sound Company still owes Pound Company $70,000 on open account and has 20% of this merchandise in inventory at December 31,2018.At the beginning of 2018,Sound Company had in inventory $100,000 of merchandise purchased in the previous period from Pound Company.
Required:
A.Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for the year ended December 31,2018.
B.Assume that Sound Company reports net income of $160,000 for the year ended December 31,2018.Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement for the year ended December 31,2018.

Accepted Answer

The answer of On January 1,2016,Pound Company acquired an 80%...

Question 11

Gain or loss resulting from an intercompany sale of equipment between a parent and a subsidiary is:

Accepted Answer

A)  recognized in the consolidated statements in the year of the sale.
B)  considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidated statements.
C)  considered to be unrealized in the consolidated statements until the equipment is sold to a third party.
D)  amortized over a period not less than 2 years and not greater than 40 years.

Question 12

Petunia Corporation owns 100% of Stone Company's common stock.On January 1,2017,Petunia sold equipment with a book value of $210,000 to Stone for $300,000.Stone is depreciating the equipment over a ten-year life by the straight-line method.The net adjustments to compute 2017 and 2018 consolidated income would be an increase (decrease)of:

Accepted Answer

A)  2017,($90,000) ; 2018,$0
B)  2017,($90,000) ; 2018,$9,000
C)  2017,($81,000) ; 2018,$0
D)  2017,($81,000) ; 2018,$9,000

Question 13

On January 1,2016,P Corporation sold equipment with a 3-year remaining life and a book value of $40,000 to its 70% owned subsidiary for a price of $46,000.In the consolidated workpapers for the year ended December 31,2017,an elimination entry for this transaction will include a:

Accepted Answer

A)  debit to Equipment for $6,000.
B)  debit to Gain on Sale of Equipment for $6,000.
C)  credit to Depreciation Expense for $6,000.
D)  debit to Accumulated Depreciation for $4,000.

Question 14

In years subsequent to the upstream intercompany sale of nondepreciable assets,the necessary consolidated workpaper entry under the cost method is to debit the:

Accepted Answer

A)  Noncontrolling interest and Retained Earnings (Parent) accounts,and credit the nondepreciable asset.
B)  Retained Earnings (Parent) account and credit the nondepreciable asset.
C)  Nondepreciable asset,and credit the Noncontrolling interest and Investment in Subsidiary accounts.
D)  No entries are necessary.

Question 15

On January 1,2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000.P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life.What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2017?

Accepted Answer

A)  no effect
B)  increase of $12,000.
C)  decrease of $12,000.
D)  increase of $3,000.

Question 16

Company S sells equipment to its parent company (P)at a gain.In years subsequent to the year of the intercompany sale,a workpaper entry is made under the cost method debiting:

Accepted Answer

A)  Retained Earnings - P.
B)  Noncontrolling interest.
C)  Equipment.
D)  all of these.

Question 17

P Corp.owns 90% of the outstanding common stock of S Company.On December 31,2017,S sold equipment to P for an amount greater than the equipment's book value but less than its original cost.The equipment should be reported on the December 31,2017 consolidated balance sheet at:

Accepted Answer

A)  P's original cost less 90% of S's recorded gain.
B)  P's original cost less S's recorded gain.
C)  S's original cost.
D)  P's original cost.

Question 18

P Company bought 60% of the common stock of S Company on January 1,2017.On January 1,2017 there was an intercompany sale of equipment at a gain of $63,000.The equipment had an estimated remaining life of six years.Net incomes of the two companies from their own operations (including sales to affiliates)were as follows:

Accepted Answer

The answer of P Company bought 60% of the common...

Question 19

An eliminating entry is needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate.Describe the necessary eliminating entry.

Accepted Answer

The answer of An eliminating entry is needed to adjust...

Question 20

Several years ago,P Company bought land from S Company,its 80% owned subsidiary,at a gain of $50,000 to S Company.The land is still owned by P Company.The consolidated working papers for this year will require:

Accepted Answer

A)  no entry because the gain happened prior to this year.
B)  a credit to land for $50,000.
C)  a debit to P's retained earnings for $50,000.
D)  a debit to Noncontrolling interest for $50,000.

Exam 7: Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment