When the goods are sold to a third party by Lord

Chapter 05 Consolidated Financial Statements - Intra-Entity Asset Transactions Answer Key

A. When the goods are sold to a third party by Lord

AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Hard

Learning Objective: 05-07 Prepare the consolidation entries to remove the effects of upstream and downstream intra-entity fixed asset transfers across affiliated entities.

12. 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?

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.

AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Easy

Learning Objective: 05-01 Understand that intra-entity asset transfers often create accounting effects within the financial records of affiliated companies that must be eliminated or adjusted in preparing consolidated financial statements.

13. Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2010, Devin made frequent sales of inventory to Bauerly. There were unrealized gains of $40,000 in the beginning inventory, and $25,000 at the end of the year. Devin reported net income of

$137,000 for 2010. Bauerly decided to use the equity method to account for the investment.

What is the noncontrolling interest's share of Devin's net income for 2010?

A. $41,100. AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-04 Understand that the consolidation process for inventory transfers is designed to defer the unrealized portion of an intra-entity gross profit from the year of transfer into the year of disposal or consumption.

Learning Objective: 05-05 Understand the difference between upstream and downstream intra-entity transfers and how each affects the computation of noncontrolling interest balances.

14. Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2010, include the following balances for land: for

Chain--$416,000, and for Shannon--$256,000. On the original date of acquisition, the book value of Shannon's land was equal to its fair value. On April 4, 2011, Chain sold to Shannon a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2010. What is the

consolidated balance for land on the 2011 balance sheet?

A. $672,000. AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-06 Prepare the consolidation entry to remove any unrealized gain created by the intra-entity transfer of land from the accounting records of the year of transfer and subsequent years.

15. Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of

inventory to Gibson. The sales, which include a markup over cost of 25%, were $420,000 in 2010 and $500,000 in 2011. At the end of each year, Gibson still owned 30% of the goods.

Net income for Sparis was $912,000 during 2011. What was the noncontrolling interest's share of Sparis' net income for 2011?

A. $85,680. AICPA FN: Measurement Bloom's: Application Difficulty: Hard

Learning Objective: 05-05 Understand the difference between upstream and downstream intra-entity transfers and how each affects the computation of noncontrolling interest balances.

16. On January 1, 2011, Payton Co. sold equipment to its subsidiary, Starker Corp., for

$115,000. The equipment had cost $125,000, and the balance in accumulated depreciation was $45,000. The equipment had an estimated remaining useful life of eight years and $0 salvage value. Both companies use straight-line depreciation. On their separate 2011 income statements, Payton and Starker reported depreciation expense of $84,000 and $60,000, respectively. The amount of depreciation expense on the consolidated income statement for 2011 would have been AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-07 Prepare the consolidation entries to remove the effects of upstream and downstream intra-entity fixed asset transfers across affiliated entities.

17. Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2011. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had $60,000 of the goods in its inventory at the end of the year. The amount of unrealized intercompany profit that should be eliminated in the consolidation process at the end of 2011 is

A. $15,000. AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-03 Prepare the consolidation entry to eliminate any intraentity inventory gross profit that remains unrealized at (a) the end of the year of transfer and (b) the beginning of the subsequent period.

18. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2011, Kile sold merchandise to Prince for $140,000. At December 31, 2011, 50% of this merchandise remained in Prince's inventory. For 2011, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intercompany profit in ending inventory at December 31, 2011 that should be eliminated in the consolidation process is A. $28,000. AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Pot Co. holds 90% of the common stock of Skillet Co. During 2011, Pot reported sales of

$1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of

$420,000 and cost of goods sold of $252,000.

19. Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for

$140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as inventory at the end of 2011.

What are consolidated sales and cost of goods sold for 2011?

A. $1,400,000 and $952,000.

B. $1,400,000 and $966,000.

C. $1,540,000 and $1,078,000.

D. $1,400,000 and $1,022,000.

E. $1,540,000 and $1,092,000.

AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-02 Prepare the consolidation entry to eliminate the sales and purchases balances that are created by the intraentity transfer of inventory.

20. Included in the amounts for Skillet's sales were Skillet's sales of merchandise to Pot for

$140,000. There were no sales from Pot to Skillet. Intra-entity sales had the same markup as sales to outsiders. Pot still had 40% of the intra-entity sales as inventory at the end of 2011.

What are consolidated sales and cost of goods sold for 2011?

A. $1,400,000 and $952,000.

B. $1,400,000 and $966,000.

C. $1,540,000 and $1,078,000.

D. $1,400,000 and $974,400.

E. $1,540,000 and $1,092,000.

AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Hard

Learning Objective: 05-02 Prepare the consolidation entry to eliminate the sales and purchases balances that are created by the intraentity transfer of inventory.

Learning Objective: 05-05 Understand the difference between upstream and downstream intra-entity transfers and how each affects the computation of noncontrolling interest balances.

21. The reported sales did not include any intra-entity sales. In addition to the reported amounts, there were intra-entity sales from Pot to Skillet in the amount of $140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same markup as sales to outsiders.

Skillet still had 40% of the intra-entity sales as inventory at the end of 2011. What are consolidated sales and cost of goods sold for 2011?

A. $1,400,000 and $1,071,000.

B. $1,400,000 and $966,000.

C. $1,540,000 and $1,078,000.

D. $1,400,000 and $1,022,000.

E. $1,540,000 and $1,092,000.

AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Medium

Learning Objective: 05-02 Prepare the consolidation entry to eliminate the sales and purchases balances that are created by the intraentity transfer of inventory.

22. Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2009, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2011, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2011, how does this transfer affect the calculation of Dalton's share of consolidated net income?

A. Consolidated net income must be reduced by $44,800.

B. Consolidated net income must be reduced by $50,400.

In document ACG4803 - Chapter 5 (Page 47-52)