Question 1

On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill which has not been impaired.
As of December 31, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows:  During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31.
-What is the total of consolidated revenues?

Accepted Answer

A)  $700,000. 
B)  $644,000. 
C)  $588,000. 
D)  $560,000. 
E)  $840,000.

Question 2

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.
-For consolidation purposes, what net debit or credit will be made for the year 2010 relating to the accumulated depreciation for the equipment transfer?

Accepted Answer

A)  Debit accumulated depreciation, $46,000. 
B)  Debit accumulated depreciation, $48,000. 
C)  Credit accumulated depreciation, $48,000. 
D)  Credit accumulated depreciation, $46,000. 
E)  Debit accumulated depreciation, $2,000.

Question 3

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 4

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. $$\begin{array} { l c r r } 
& \mathbf { 2 0 1 0 } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \
\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \
\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000
\end{array}$$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $\begin{array}{lrrr}&2010&2011&2012\
\text { Gargiulo's net income } & \$ 70,000 & \$ 85,000 & \$ 94,000 \
\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000
\end{array}$
-Compute the noncontrolling interest in Gargiulo's net income for 2012.

Accepted Answer

A)  $9,400. 
B)  $9,375. 
C)  $9,425. 
D)  $9,325. 
E)  $8,485.

Question 5

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale?

Accepted Answer

A)  A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer. 
B)  A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. 
C)  A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method. 
D)  A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment. 
E)  No worksheet entry is necessary.

Question 6

During 2011, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned all of the inventory at the end of 2011. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2011?

Accepted Answer

The answer of During 2011, Edwards Co. sold inventory to...

Question 7

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 8

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.
-Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales.

Accepted Answer

A)  $10,000,000. 
B)  $10,126,000. 
C)  $10,140,000. 
D)  $10,200,000. 
E)  $10,260,000.

Question 9

On April 7, 2011, Pate Corp. sold land to Shannahan Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer actually be earned?

Accepted Answer

The answer of On April 7, 2011, Pate Corp. sold...

Question 10

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 11

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.
-Compute the gain recognized by Smeder Company relating to the equipment for 2010.

Accepted Answer

A)  $36,000. 
B)  $34,000. 
C)  $12,000. 
D)  $10,000. 
E)  $0.

Question 12

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 credit 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 13

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$
-Compute the amortization of gain through a depreciation adjustment for 2011 for consolidation purposes.

Accepted Answer

A)  $1,950. 
B)  $1,825. 
C)  $2,000. 
D)  $1,500. 
E)  $7,000.

Question 14

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 journal entries for Virginia and Stateside to record the sales/purchases during 2010.

Accepted Answer

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

Question 15

Throughout 2011, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer be earned?

Accepted Answer

The answer of Throughout 2011, Cleveland Co. sold inventory to...

Question 16

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 2010.

Accepted Answer

A)  $110,000. 
B)  $100,000. 
C)  $125,000. 
D)  $85,000. 
E)  $88,000.

Question 17

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 methd of accounting for its investment in Strickland, which of the following choices would be a credit 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 18

X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2011, Kent made several sales of inventory to X-Beams. The total selling price was $180,000 and the cost was $100,000. At the end of the year, 20% of the goods were still in X-Beams' inventory. Kent's reported net income was $300,000. What was the noncontrolling interest in Kent's net income?

Accepted Answer

A)  $90,000. 
B)  $85,200. 
C)  $54,000. 
D)  $94,800. 
E)  $86,640.

Question 19

During 2010, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized?

Accepted Answer

A)  When the goods are sold to a third party by Lord. 
B)  When Lord pays Von for the goods. 
C)  When Von sold the goods to Lord. 
D)  When the goods are used by Lord. 
E)  No gain can be recognized since the transaction was between related parties.

Question 20

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. $$\begin{array} { l c r r } 
& \mathbf { 2 0 1 0 } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \
\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \
\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000
\end{array}$$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $\begin{array}{lrrr}&2010&2011&2012\
\text { Gargiulo's net income } & \$ 70,000 & \$ 85,000 & \$ 94,000 \
\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000
\end{array}$
-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.

Exam 5: Consolidated Financial Statements - Intra-Entity Asset Transactions