Question 1

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.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2010 consolidation worksheet entry with regard to the unrealized gross profit of the 2010 intra-entity transfer of merchandise?

Accepted Answer

A)  $0. 
B)  $1,600. 
C)  $300. 
D)  $240. 
E)  $270.

Question 2

McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler Co. During 2011, Ritter sold inventory to Lawler. The goods had cost Ritter $65,000, and they were sold to Lawler for $100,000. At the end of 2011, Lawler still held 30% of the inventory.
Required:
How should the sale between Lawler and Ritter be accounted for in a consolidation worksheet? Show worksheet entries to support your answer.

Accepted Answer

The answer of McGraw Corp. owned all of the voting...

Question 3

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.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  Compute the equity in earnings of Gargiulo reported on Posito's books for 2012.

Accepted Answer

A)  $84,600. 
B)  $84,375. 
C)  $83,925. 
D)  $84,825. 
E)  $84,850.

Question 4

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 the gain or loss on the intra-entity sale of land.

Accepted Answer

A)  $15,000 loss. 
B)  $15,000 gain. 
C)  $50,000 loss. 
D)  $50,000 gain. 
E)  $65,000 gain.

Question 5

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 purchased from Stark in 2010 for $92,000 in 2012. Which of the following will be included in a consolidation entry for 2010?

Accepted Answer

A)  Debit loss for $5,000. 
B)  Credit loss for $5,000. 
C)  Credit land for $5,000. 
D)  Debit gain for $5,000. 
E)  Credit gain for $5,000.

Question 6

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.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012 consolidation worksheet entry with regard to the unrealized gross profit of the 2011 intra-entity transfer of merchandise?

Accepted Answer

A)  $3,000. 
B)  $2,400. 
C)  $1,000. 
D)  $800. 
E)  $900.

Question 7

Which of the following statements is true regarding an intra-entity sale of land?

Accepted Answer

A)  A loss is always recognized but a gain is eliminated in a consolidated income statement. 
B)  A loss and a gain are always eliminated in a consolidated income statement. 
C)  A loss and a gain are always recognized in a consolidated income statement. 
D)  A gain is always recognized but a loss is eliminated in a consolidated income statement. 
E)  A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income.

Question 8

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.

Accepted Answer

The answer of Virginia Corp. owned all of the voting...

Question 9

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 2011.

Accepted Answer

A)  $140,000. 
B)  $97,000. 
C)  $125,000. 
D)  $100,000. 
E)  $112,000.

Question 10

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 2011, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

Accepted Answer

A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Strickland Company. 
E)  Sales.

Question 11

Justings Co. owned 80% of Evana Corp. During 2011, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should

Accepted Answer

A)  not recognize a gain on the sale of the land since it was made to a related party. 
B)  recognize a gain of $17,600. 
C)  defer recognition of the gain until Evana sells the land to a third party. 
D)  recognize a gain of $8,000. 
E)  recognize a gain of $22,000.

Question 12

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 purchased from Stark in 2010 for $92,000 in 2012. Compute the gain or loss relating to the land that will be reported in consolidated net income for 2012.

Accepted Answer

A)  $5,000 loss. 
B)  $7,000 gain. 
C)  $12,000 gain. 
D)  $7,000 loss. 
E)  $12,000 loss.

Question 13

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 purchased from Stark in 2010 for $92,000 in 2012. Compute income from Stark reported on Parker's books for 2010.

Accepted Answer

A)  $205,000. 
B)  $200,000. 
C)  $180,000. 
D)  $175,500. 
E)  $184,500.

Question 14

Flintstone Inc. acquired all of Rubble Co. on January 1, 2011. Flintstone decided to use the initial value method to account for this investment. During 2011, Flintstone sold to Rubble for $600,000 inventory with a cost of $500,000. At the end of the year 30% of the goods were still in Rubble's inventory.
Required:
Prepare Consolidation Entry TI for the intra-entity transfer and Consolidation Entry G for the ending inventory adjustment necessary for the consolidation worksheet at 12/31/11.

Accepted Answer

The answer of Flintstone Inc. acquired all of Rubble Co....

Question 15

Tara Company owns 80 percent of the common stock of Stodd Inc. In the current year, Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000. For the same period, Stodd has sales of $500,000 and cost of goods sold of $400,000. During the year, Stodd sold merchandise to Tara for $40,000 at a price based on the normal markup. At the end of the year, Tara still possesses 20 percent of this inventory. Prepare the consolidation entry to defer the unrealized gain.

Accepted Answer

The answer of Tara Company owns 80 percent of the...

Question 16

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, 2010 Simon 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:  Compute Wilson's share of income from Simon for consolidation for 2011.

Accepted Answer

A)  $108,000 
B)  $110,000. 
C)  $106,000. 
D)  $109,825. 
E)  $109,800.

Question 17

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 debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

Accepted Answer

A)  Retained earnings. 
B)  Cost of goods sold. 
C)  Inventory. 
D)  Investment in Fisher Company. 
E)  Sales.

Question 18

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.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.  For consolidation purposes, what amount would be debited to cost of goods sold for the 2010 consolidation worksheet with regard to unrealized gross profit of the intra-entity transfer of merchandise?

Accepted Answer

A)  $300. 
B)  $240. 
C)  $2,000. 
D)  $1,600. 
E)  $270.

Question 19

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?

Accepted Answer

The answer of Dithers Inc. acquired all of the common...

Question 20

How does a gain on an intra-entity sale of equipment affect the calculation of a non-controlling interest?

Accepted Answer

The answer of How does a gain on an intra-entity...

Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

Which of the following statements is true regarding an intra-entity sale of land?

Justings Co. owned 80% of Evana Corp. During 2011, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should

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?

How does a gain on an intra-entity sale of equipment affect the calculation of a non-controlling interest?