246121673 Chapter Five Hoyle

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ch5

Student: ___________________________________________________________________________

1. On November 8, 2009, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

A. Proportionately over a designated period of years B. When Wood Co. sells the land to a third party C. No gain can be recognized

D. As Wood uses the land

E. When Wood Co. begins using the land productively

2. Edgar Co. acquired 60% of Kindall Co. on January 1, 2009. During 2009, Edgar made several sales of

inventory to Kindall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Kindall still owned one-fourth of the goods at the end of 2009. Consolidated cost of goods sold for 2009 was

$2,140,000. How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Kindall to Edgar?

A. Consolidated cost of goods sold would have been $2,140,000 B. Consolidated cost of goods sold would have been $2,175,000

C. The effect on consolidated cost of goods sold cannot be predicted from the information provided

D. Consolidated cost of goods sold would have been reduced because of the non-controlling interest in the subsidiary

E. Consolidated cost of goods sold would have been higher because of the non-controlling interest in the subsidiary

3. On January 1, 2009, Race Corp. acquired 80% of the voting common stock of Gallow Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000. Gallow still owned 15% of the goods at

year-end. Gallow's reported net income was $204,000 and Race's net income was $806,000. Race decided to use the equity method to account for this investment. What was the non-controlling interest's share of

consolidated net income?

A. $37,200 B. $22,800 C. $30,900 D. $32,900 E. $40,800

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4. Webb Co. acquired 100% of Rand Inc. on January 5, 2009. During 2009, Webb sold Rand for $2,400,000 goods that cost $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand. What was consolidated cost of goods sold?

A. $17,200,000 B. $15,040,000 C. $14,800,000 D. $16,960,000 E. $14,560,000

5. Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2009. During 2009, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2010, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000 and Gaspard Farms still owned 10% of the goods at year-end. For 2010, cost of goods sold was $1,200,000 for Gaspard Farms and $5,400,000 for Gentry. What was consolidated cost of goods sold for 2010?

A. $6,600,000 B. $6,596,000 C. $5,620,000 D. $5,596,000 E. $5,625,000

6. X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2009, 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 non-controlling interest in Kent's net income?

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

7. Justings Co. owned 80% of Evana Corp. During 2009, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should

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

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8. Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2009, Thelma sold a parcel of land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income for 2009 was $119,000. What is the non-controlling interest's share of Thelma's net

income? A. $35,700 B. $31,800 C. $39,600 D. $22,200 E. $26,100

9. Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2009, Clemente sold some equipment to Snider for $125,000. The equipment had cost $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider. At what amount should the equipment (net of depreciation) be included on the consolidated balance sheet dated December 31, 2009? A. $100,000

B. $95,000 C. $75,000 D. $80,000 E. $85,000

10. During 2009, 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

11. Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2009, 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 2009. Bauerly decided to use the equity method to account for the investment. What is the non-controlling interest's share of Devin's net income for 2009? A. $41,100

B. $33,600 C. $21,600 D. $45,600 E. $36,600

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12. Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2009, 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, 2010, 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 2010 balance sheet?

A. $672,000 B. $690,000 C. $755,000 D. $737,000 E. $654,000

13. 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 2009 and $500,000 in 2010. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2010. What was the non-controlling interest's share of Sparis' net income for 2010?

A. $85,680 B. $90,600 C. $90,720 D. $91,680 E. $91,800

14. On January 1, 2009, 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 2009 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 2009 would have been

A. $144,000 B. $148,375 C. $109,000 D. $134,000 E. $139,625

15. Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2009. 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 2009 is A. $15,000

B. $20,000 C. $32,500 D. $30,000 E. $110,000

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16. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2009, Kile sold merchandise to Prince for $140,000. At December 31, 2009, 50% of this merchandise remained in Prince's inventory. For 2009, 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, 2009 that should be eliminated in the consolidation process is A. $28,000 B. $56,000 C. $22,400 D. $21,000 E. $42,000

Pot Co. holds 90% of the common stock of Skillet Co. During 2009, 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. Also during 2009, Pot sold merchandise to Skillet for $140,000. The subsidiary still possesses 40% of this inventory at the end of 2009. Pot had established the transfer price based on its normal markup.

17. What are consolidated sales and cost of goods sold? 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

18. Assuming that the transfers were from Skillet Co. to Pot Co., what are consolidated sales and cost of goods

sold? 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

19. Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2007, 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, 2009, 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 2009, 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 C. Consolidated net income must be reduced by $49,000 D. Consolidated net income must be reduced by $56,000 E. Consolidated net income must be reduced by $53,200

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On January 1, 2009, Pride, Inc. bought 80% of the outstanding voting common stock of Strong Corp. for $364,000. 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, 2009, before preparing the consolidated worksheet, the financial statements appeared as follows:

During 2009, 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.

20. What is the total of consolidated revenues? A. $700,000

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

21. What is the total of consolidated operating expenses? A. $42,000

B. $47,600 C. $53,200 D. $48,000 E. $36,400

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22. What is the total of consolidated cost of goods sold? A. $196,000 B. $212,800 C. $184,800 D. $203,000 E. $168,000

23. What is the consolidated total of non-controlling interest appearing on the balance sheet? A. $100,800

B. $97,440 C. $93,800 D. $98,840 E. $101,900

24. What is the consolidated total for equipment (net) at December 31, 2009? A. $952,000

B. $1,058,400 C. $1,069,600 D. $1,064,000 E. $1,066,800

25. What is the consolidated total for inventory at December 31, 2009? A. $336,000

B. $280,000 C. $364,000 D. $347,200 E. $349,300

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2009. Select the correct answer.

26. With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2009?

A. Retained earnings B. Cost of goods sold C. Inventory

D. Investment Strickland Company E. Additional paid-in capital

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27. With regard to the intercompany sale, which of the following choices would be a credit entry in the consolidated worksheet for 2009?

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2009. Walsh uses the equity method to account for its investment in Fisher.

D. Investment Fisher Company E. Additional paid-in capital

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D. Investment in Fisher Company E. Additional paid-in capital

34. When comparing the difference between an upstream and downstream transfer of inventory and using the initial value method, which of the following statements is true?

A. Income from subsidiary will be lower by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers

B. Income from subsidiary will be higher by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers

C. Income from subsidiary will be reduced for downstream ending inventory profit but not for upstream profit, before the effect of the non-controlling interest

D. Income from subsidiary will be reduced for upstream ending inventory profit but not for downstream profit, before the effect of the non-controlling interest

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A. Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers

B. Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers

C. Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest

D. Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest

E. Income from subsidiary will be the same for upstream and downstream profits

36. Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method?

A. The sale of merchandise between a parent and its subsidiary represents an arm's-length transaction and thus provides the basis for the recognition of profit on such transfers

B. Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is inappropriate because all the intercompany transactions unsold at year-end may not be sold in the next year

C. Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intercompany transactions unsold at year-end may not be sold in the next year

D. Merchandise transfers from a parent to its subsidiary that have not been sold to unaffiliated parties should be included in consolidated inventory at their transfer price

E. Non-controlling interest in subsidiary's net income should not be reduced for upstream or downstream ending inventory profits

37. Which of the following statements is true regarding an intercompany sale of land? A. A loss is always recognized but a gain is eliminated on a consolidated income statement B. A loss and a gain are always eliminated on a consolidated income statement

C. A loss and a gain are always recognized on a consolidated income statement

D. A gain is always recognized but a loss is eliminated on a consolidated income statement E. A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income

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38. Parent sold land to its subsidiary for a gain in 2007. The subsidiary sold the land externally for a gain in 2010. Which of the following statements is true?

A. A gain will be reported on the consolidated income statement in 2007 B. A gain will be reported on the consolidated income statement in 2010 C. No gain will be reported on the 2010 consolidated income statement D. Only the parent company will report a gain in 2010

E. The subsidiary will report a gain in 2007

39. An intercompany sale took place whereby the transfer price exceeded the book value of a depreciable asset. Which statement is true for the year following the sale?

A. A worksheet entry is made with a debit to gain for a downstream transfer B. A worksheet entry is made with a debit to gain for an upstream transfer

C. A worksheet entry is made with a debit 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 a downstream transfer E. No worksheet entry is necessary

40. An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year following the sale?

A. A worksheet entry is made with a debit to retained earnings for an upstream transfer B. A worksheet entry is made with a credit to retained earnings for an upstream transfer C. A worksheet entry is made with a debit to retained earnings for a downstream transfer

D. A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer E. No worksheet entry is necessary

41. An intercompany 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?

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 E. No worksheet entry is necessary

42. Which of the following statements is true concerning an intercompany transfer of a depreciable asset? A. Non-controlling interest in subsidiary's net income is never affected by a gain on the transfer

B. Non-controlling interest in subsidiary's net income is always affected by a gain on the transfer C. Non-controlling interest in subsidiary's net income is affected by a downstream gain only

D. Non-controlling interest in subsidiary's net income is affected only when the transfer is upstream

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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 intercompany purchases. Gargiulo was acquired on January 1, 2009.

Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.

43. Compute the income from Gargiulo reported on Posito's books for 2009. A. $63,000

B. $62,730 C. $63,270 D. $70,000 E. $62,700

B. $77,130 C. $75,870 D. $75,600 E. $75,800

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

46. Compute the non-controlling interest in Gargiulo's net income for 2009. A. $6,970

B. $7,000 C. $7,030 D. $6,270 E. $6,230

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47. Compute the non-controlling interest in Gargiulo's net income for 2010. A. $8,500 B. $8,570 C. $8,430 D. $8,400 E. $7,580

48. Compute the non-controlling interest in Gargiulo's net income for 2011. A. $9,400

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

49. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2009? A. $300 B. $240 C. $2,000 D. $1,600 E. $270

50. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2010? A. $1,000 B. $800 C. $3,000 D. $2,400 E. $900

51. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2011? A. $600 B. $750 C. $3,760 D. $3,000 E. $675

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52. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2009? A. $0 B. $1,600 C. $300 D. $240 E. $270

53. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2010? A. $240 B. $300 C. $2,000 D. $1,600 E. $270

54. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2011? A. $3,000 B. $2,400 C. $1,000 D. $800 E. $900

Patti Company holds 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.

55. Compute consolidated sales. A. $10,000,000

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

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56. Compute consolidated cost of goods sold. A. $7,500,000 B. $7,600,000 C. $7,615,000 D. $7,604,500 E. $7,660,000

57. Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales. A. $10,000,000

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

On April 1, 2009 Wilson Company, a 90% owned subsidiary of Simon Company, bought equipment from Simon for $68,250. On January 1, 2009, Simon realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1, 2009.

The following data are available pertaining to Wilson's income and dividends:

58. Compute the gain on transfer of equipment reported by Simon for 2009. A. $19,500

B. $18,250 C. $11,750 D. $38,250 E. $37,500

59. Compute the amortization of gain for 2009 for consolidation purposes. A. $1,950

B. $1,825 C. $1,500 D. $2,000 E. $5,250

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60. Compute the amortization of gain for 2010 for consolidation purposes. A. $1,950 B. $1,825 C. $2,000 D. $1,500 E. $7,000

61. Compute the amortization of gain for 2011 for consolidation purposes. A. $1,925

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

62. Compute Simon's share of income from Wilson for consolidation for 2009. A. $72,000

B. $90,000 C. $73,575 D. $73,800 E. $72,500

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

B. $115,000 C. $117,000 D. $119,000 E. $118,800

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On January 1, 2009, 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 2009 and 2010, respectively.

65. Compute the gain recognized by Smeder Company relating to the equipment for 2009. A. $36,000

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

66. Compute Collins' share of Smeder's net income for 2009. A. $12,400

B. $14,400 C. $11,200 D. $12,800 E. $18,000

67. Compute Collins' share of Smeder's net income for 2010. A. $27,600

B. $23,600 C. $27,200 D. $24,000 E. $34,000

68. For consolidation purposes, what net debit or credit will be made in 2009 relating to the equipment transfer?

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

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69. What is the net effect on consolidated net income in 2009, before allocation to controlling and non-controlling interests, due to the equipment transfer?

A. Increase $2,000 B. Decrease $12,000 C. Decrease $10,000 D. Decrease $14,000 E. Increase $10,000

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2009, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2009 and 2010, respectively. Leo uses the equity method to account for its investment.

70. Compute the gain or loss on the intercompany sale of land. A. $15,000 loss

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

71. On a consolidation worksheet, what adjustment would be made for 2009 regarding the land transfer? A. Debit gain for $50,000

B. Credit gain for $50,000 C. Debit land for $15,000 D. Credit land for $15,000 E. Credit gain for $15,000

72. On a consolidation worksheet, having used the equity method, what adjustment would be made for 2010 regarding the land transfer?

A. Debit retained earnings for $15,000 B. Credit retained earnings for $15,000 C. Debit retained earnings for $50,000 D. Credit retained earnings for $50,000 E. Debit investment in Stiller for $15,000

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73. Compute income from Stiller on Leo's books for 2009. A. $110,000 B. $100,000 C. $125,000 D. $85,000 E. $88,000

74. Compute income from Stiller on Leo's books for 2010. A. $140,000

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

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2009, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000 and $220,000 for 2009, 2010 and 2011, respectively. Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011.

75. Compute the gain or loss on the intercompany sale of land. A. $80,000 gain

B. $80,000 loss C. $5,000 gain D. $5,000 loss E. $85,000 loss

76. Which of the following will be included in a consolidation entry for 2009? 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

77. Which of the following will be included in a consolidation entry for 2010? A. Debit retained earnings for $5,000

B. Credit retained earnings for $5,000 C. Debit investment in subsidiary for $5,000 D. Credit investment in subsidiary for $5,000 E. Credit land for $5,000

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78. Compute income from Stark reported on Parker's books for 2009. A. $205,000 B. $200,000 C. $180,000 D. $175,500 E. $184,500

79. Compute income from Stark reported on Parker's books for 2010. A. $185,000

B. $157,500 C. $166,500 D. $162,000 E. $180,000

80. Compute the consolidated gain or loss relating to the land for 2011. A. $5,000 loss

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

81. Compute Parker's reported gain or loss relating to the land for 2011. A. $12,000 gain

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

82. Compute Stark's reported gain or loss relating to the land for 2011. A. $5,000 loss

B. $5,000 gain C. $7,000 loss D. $7,000 gain E. $0

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83. Compute income from Stark reported on Parker's books for 2011. A. $204,300 B. $202,500 C. $193,500 D. $191,700 E. $225,000

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2009. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2009 and 2010, respectively. Pepe uses the equity method to account for its investment in Devin.

84. What is the gain or loss on equipment reported by Devin for 2009? A. $54,000 gain

B. $21,000 loss C. $21,000 gain D. $9,000 loss E. $9,000 gain

85. What is the consolidated gain or loss on equipment for 2009? A. $0

B. $9,000 gain C. $9,000 loss D. $21,000 gain E. $21,000 loss

86. Compute the income from Devin reported on Pepe's books for 2009. A. $174,600

B. $184,800 C. $172,000 D. $171,000 E. $180,600

87. Compute the income from Devin reported on Pepe's books for 2010. A. $190,200

B. $196,000 C. $194,400 D. $187,000 E. $195,000

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88. Compute the non-controlling interest in the net income of Devin for 2009. A. $116,400 B. $120,400 C. $120,000 D. $123,200 E. $112,000

89. Compute the non-controlling interest in the net income of Devin for 2010. A. $126,800

B. $130,600 C. $122,000 D. $130,000 E. $129,600

90. For each of the following situations (1 - 10), select the correct entry (a - e) that would be required on a

consolidated worksheet.

(A.) Debit retained earnings. (B.) Credit retained earnings. (C.) Debit investment in subsidiary. (D.) Credit investment in subsidiary. (E.) None of the above.

___ 1. Upstream beginning inventory profit, using the initial value method. ___ 2. Downstream beginning inventory profit, using the initial value method. ___ 3. Upstream ending inventory profit, using the initial value method. ___ 4. Downstream ending inventory profit, using the initial value method.

___ 5. Upstream transfer of depreciable assets in the period after transfer where subsidiary recognizes a gain, using the initial value method.

___ 6. Downstream transfer of depreciable assets in the period after transfer where parent recognizes a gain, using the initial value method.

___ 7. Upstream transfer of land in the period after transfer where subsidiary recognizes a loss, using the initial value method.

___ 8. Downstream transfer of land in the period after transfer where parent recognizes a loss, using the initial value method.

___ 9. Income from subsidiary, using the equity method.

(23)

91. On April 7, 2009, 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?

92. Throughout 2009, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer be earned?

93. Varton Corp. acquired all of the voting common stock of Caleb Co. on January 1, 2009. Varton owned some land with a book value of $84,000 that was sold to Caleb for its fair value of $120,000. How should this

transaction be accounted for by the consolidated entity?

94. During 2009, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned all of the inventory at the end of 2009. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2009?

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95. How does a gain on an intercompany sale of equipment affect the calculation of a non-controlling interest?

96. How do upstream and downstream inventory transfers differ in their effect on a year-end consolidation?

97. How is the gain on an intercompany transfer of a depreciable asset realized?

98. Dithers Inc. acquired all of the common stock of Bumstead Corp. on January 1, 2009. During 2009, Bumstead sold land to Dithers at a gain. No consolidation entry for the sale of the land was made at the end of 2009. What errors will this omission cause in the consolidated financial statements?

99. Why do intercompany transfers between the component companies of a business combination occur so frequently?

(25)

100. Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2009. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?

101. What is meant by unrealized inventory gains and how are they treated on a consolidation worksheet?

102. What is the impact on the non-controlling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?

103. How is the gain on an intercompany transfer of land realized?

104. What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intercompany transfer of a depreciable asset?

(26)

105. Tara Company holds 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.

106. King Corp. owns 85% of James Co. King uses the equity method to account for this investment. During 2009, King sells inventory to James for $500,000. The inventory originally cost King $420,000. At 12/31/09, 25% of the goods were still in James' inventory.

Required:

Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.

107. Flintstone Inc. acquired all of Rubble Co. on January 1, 2009. Flintstone decided to use the initial value

method to account for this investment. During 2009, 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:

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108. Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near the end of 2008. The goods had cost Yoderly $105,000 and the selling price was $140,000. Nelson had not sold any of the goods by the end of the year.

Required:

Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2009.

109. Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the initial value method to account for this investment. During 2009, Strayten sold Quint goods which had cost $48,000. The selling price was $64,000. Quint still had one-fourth of the goods on hand at the end of the year.

Required:

Prepare Consolidation Entry *G, which would have to be recorded at the end of 2010.

110. Hambly Corp. owned 80% of the voting common stock of Stroban Co. During 2009, Stroban sold a parcel of land to Hambly. The land had a book value of $82,000 and was sold to Hambly for $145,000. Stroban's reported net income for 2009 was $119,000.

Required:

(28)

111. McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler Co. During 2009, 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 2009, Lawler still held 30% of the inventory.

Required:

How should the sale between Lawler and Ritter be accounted for by the consolidated entity?

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

2009, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of the year, Stateside had used 75% of the goods.

112. Prepare journal entries for Virginia and Stateside to record the sales/purchases during 2009.

113. Prepare the consolidation entries that should be made at the end of 2009.

(29)

Several years ago Polar Inc. purchased an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar paid an amount

corresponding to the underlying book value of Icecap so that no allocations or goodwill resulted from the purchase price.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2009:

115. Assume that Polar sold inventory to Icecap at a markup equal to 40% of cost. Intercompany transfers were $126,000 in 2008 and $154,000 in 2009. Of this inventory, $39,200 of the 2008 transfers were retained and then sold by Icecap in 2009 while $58,800 of the 2009 transfers were held until 2010.

Required:

On the consolidated financial statements for 2009, determine the balances that would appear for the following accounts: (1) Cost of Goods Sold, (2) Inventory and (3) Non-controlling Interest in Subsidiary's Net Income. (If you use a gross profit percentage, do not round the calculation.)

116. Assume that Icecap sold inventory to Polar at a markup equal to 40% of cost. Intercompany transfers were $70,000 in 2008 and $112,000 in 2009. Of this inventory, $29,400 of the 2008 transfers were retained and then sold by Polar in 2009 whereas $49,000 of the 2009 transfers were held until 2010.

Required:

On the consolidated financial statements for 2009, determine the balances that would appear for the following accounts: (1) Cost of Goods Sold, (2) Inventory and (3) Non-controlling Interest in Subsidiary's Net Income. (If you use a gross profit percentage, do not round the calculation.)

(30)

117. Polar sold a building to Icecap on January 1, 2008 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value.

Required:

On the consolidated financial statements for 2009, determine the balances that would appear for the following accounts: (1) Buildings (net), (2) Operating expenses and (3) Non-controlling Interest in Subsidiary's Net Income.

On January 1, 2009, Musial Corp. sold equipment to Matin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment had originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the

straight-line method.

Musial earned $308,000 in net income in 2009 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment.

118. What is consolidated net income for 2009?

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120. Assuming that Musial owned only 90% of Matin and the equipment transfer had been upstream, what is consolidated net income for 2009?

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ch5

Key

1. On November 8, 2009, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

A.Proportionately over a designated period of years B. When Wood Co. sells the land to a third party

C.No gain can be recognized

D.As Wood uses the land

E.When Wood Co. begins using the land productively

Difficulty: Easy Hoyle - Chapter 05 #1

2. Edgar Co. acquired 60% of Kindall Co. on January 1, 2009. During 2009, Edgar made several sales of

inventory to Kindall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Kindall still owned one-fourth of the goods at the end of 2009. Consolidated cost of goods sold for 2009 was

$2,140,000. How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Kindall to Edgar?

A. Consolidated cost of goods sold would have been $2,140,000

B.Consolidated cost of goods sold would have been $2,175,000

C.The effect on consolidated cost of goods sold cannot be predicted from the information provided

D.Consolidated cost of goods sold would have been reduced because of the non-controlling interest in the subsidiary

E.Consolidated cost of goods sold would have been higher because of the non-controlling interest in the subsidiary

Difficulty: Medium Hoyle - Chapter 05 #2

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3. On January 1, 2009, Race Corp. acquired 80% of the voting common stock of Gallow Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000. Gallow still owned 15% of the goods at

year-end. Gallow's reported net income was $204,000 and Race's net income was $806,000. Race decided to use the equity method to account for this investment. What was the non-controlling interest's share of

consolidated net income? A.$37,200 B.$22,800 C.$30,900 D.$32,900 E. $40,800 Difficulty: Easy Hoyle - Chapter 05 #3

4. Webb Co. acquired 100% of Rand Inc. on January 5, 2009. During 2009, Webb sold Rand for $2,400,000 goods that cost $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand. What was consolidated cost of goods sold?

A.$17,200,000 B. $15,040,000 C.$14,800,000 D.$16,960,000 E.$14,560,000 Difficulty: Hard Hoyle - Chapter 05 #4

5. Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2009. During 2009, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2010, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000 and Gaspard Farms still owned 10% of the goods at year-end. For 2010, cost of goods sold was $1,200,000 for Gaspard Farms and $5,400,000 for Gentry. What was consolidated cost of goods sold for 2010?

A.$6,600,000 B.$6,596,000 C.$5,620,000 D. $5,596,000 E.$5,625,000 Difficulty: Hard Hoyle - Chapter 05 #5

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6. X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2009, 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 non-controlling interest in Kent's net income?

A.$90,000 B. $85,200 C.$54,000 D.$94,800 E.$86,640 Difficulty: Medium Hoyle - Chapter 05 #6

7. Justings Co. owned 80% of Evana Corp. During 2009, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should

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

8. Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2009, Thelma sold a parcel of land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income for 2009 was $119,000. What is the non-controlling interest's share of Thelma's net

income? A.$35,700 B. $31,800 C.$39,600 D.$22,200 E.$26,100 Difficulty: Medium Hoyle - Chapter 05 #8

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9. Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2009, Clemente sold some equipment to Snider for $125,000. The equipment had cost $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider. At what amount should the equipment (net of depreciation) be included on the consolidated balance sheet dated December 31, 2009?

A.$100,000 B.$95,000 C.$75,000 D.$80,000 E.$85,000 Difficulty: Medium Hoyle - Chapter 05 #9

10. During 2009, 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

11. Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2009, 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 2009. Bauerly decided to use the equity method to account for the investment. What is the non-controlling interest's share of Devin's net income for 2009?

A.$41,100 B.$33,600 C.$21,600 D. $45,600 E.$36,600 Difficulty: Medium Hoyle - Chapter 05 #11

(36)

12. Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2009, 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, 2010, 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 2010 balance sheet?

13. 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 2009 and $500,000 in 2010. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2010. What was the non-controlling interest's share of Sparis' net income for 2010?

A.$85,680 B.$90,600 C. $90,720 D.$91,680 E.$91,800 Difficulty: Hard Hoyle - Chapter 05 #13

14. On January 1, 2009, 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 2009 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 2009 would have been

A.$144,000 B.$148,375 C.$109,000 D.$134,000 E. $139,625 Difficulty: Medium Hoyle - Chapter 05 #14

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15. Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2009. 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 2009 is

16. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2009, Kile sold merchandise to Prince for $140,000. At December 31, 2009, 50% of this merchandise remained in Prince's inventory. For 2009, 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, 2009 that should be eliminated in the consolidation process is A. $28,000 B.$56,000 C.$22,400 D.$21,000 E.$42,000 Difficulty: Medium Hoyle - Chapter 05 #16

Pot Co. holds 90% of the common stock of Skillet Co. During 2009, 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. Also during 2009, Pot sold merchandise to Skillet for $140,000. The subsidiary still possesses 40% of this inventory at the end of 2009. Pot had established the transfer price based on its normal markup.

Hoyle - Chapter 05

17. What are consolidated sales and cost of goods sold?

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 Difficulty: Hard Hoyle - Chapter 05 #17

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18. Assuming that the transfers were from Skillet Co. to Pot Co., what are consolidated sales and cost of goods sold? 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 Difficulty: Hard Hoyle - Chapter 05 #18

19. Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2007, 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, 2009, 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 2009, 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 C. Consolidated net income must be reduced by $49,000

D.Consolidated net income must be reduced by $56,000

E.Consolidated net income must be reduced by $53,200

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On January 1, 2009, Pride, Inc. bought 80% of the outstanding voting common stock of Strong Corp. for $364,000. 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, 2009, before preparing the consolidated worksheet, the financial statements appeared as follows:

During 2009, 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.

20. What is the total of consolidated revenues?

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21. What is the total of consolidated operating expenses? A.$42,000 B. $47,600 C.$53,200 D.$48,000 E.$36,400 Difficulty: Medium Hoyle - Chapter 05 #21

22. What is the total of consolidated cost of goods sold?

23. What is the consolidated total of non-controlling interest appearing on the balance sheet? A. $100,800 B.$97,440 C.$93,800 D.$98,840 E.$101,900 Difficulty: Medium Hoyle - Chapter 05 #23

24. What is the consolidated total for equipment (net) at December 31, 2009?

A.$952,000 B. $1,058,400 C.$1,069,600 D.$1,064,000 E.$1,066,800 Difficulty: Medium Hoyle - Chapter 05 #24

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25. What is the consolidated total for inventory at December 31, 2009? A.$336,000 B.$280,000 C.$364,000 D. $347,200 E.$349,300 Difficulty: Medium Hoyle - Chapter 05 #25

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2009. Select the correct answer.

A.Retained earnings B. Cost of goods sold

C.Inventory

D.Investment Strickland Company

E.Additional paid-in capital

A.Retained earnings

B.Cost of goods sold C.Inventory

(42)

A. Retained earnings

B.Cost of goods sold

C.Inventory

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2009. Walsh uses the equity method to account for its investment in Fisher.

A.Retained earnings B.Cost of goods sold

C.Inventory

D.Investment Fisher Company

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A.Retained earnings

B.Cost of goods sold C. Inventory

A.Retained earnings

B.Cost of goods sold

C.Inventory

D. Investment in Fisher Company

C.Inventory

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A. Income from subsidiary will be lower by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers

B.Income from subsidiary will be higher by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers

C.Income from subsidiary will be reduced for downstream ending inventory profit but not for upstream profit, before the effect of the non-controlling interest

D.Income from subsidiary will be reduced for upstream ending inventory profit but not for downstream profit, before the effect of the non-controlling interest

E.Income from subsidiary will be the same for upstream and downstream profit

Difficulty: Hard Hoyle - Chapter 05 #34

A.Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers

B. Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers

C.Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest

D.Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest

E.Income from subsidiary will be the same for upstream and downstream profits

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36. Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method?

A.The sale of merchandise between a parent and its subsidiary represents an arm's-length transaction and thus provides the basis for the recognition of profit on such transfers

B.Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is inappropriate because all the intercompany transactions unsold at year-end may not be sold in the next year

C. Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intercompany transactions unsold at year-end may not be sold in the next year

D.Merchandise transfers from a parent to its subsidiary that have not been sold to unaffiliated parties should be included in consolidated inventory at their transfer price

E.Non-controlling interest in subsidiary's net income should not be reduced for upstream or downstream ending inventory profits

37. Which of the following statements is true regarding an intercompany sale of land?

A.A loss is always recognized but a gain is eliminated on a consolidated income statement B. A loss and a gain are always eliminated on a consolidated income statement

C.A loss and a gain are always recognized on a consolidated income statement

D.A gain is always recognized but a loss is eliminated on a consolidated income statement

E.A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income

38. Parent sold land to its subsidiary for a gain in 2007. The subsidiary sold the land externally for a gain in 2010. Which of the following statements is true?

A.A gain will be reported on the consolidated income statement in 2007 B. A gain will be reported on the consolidated income statement in 2010

C.No gain will be reported on the 2010 consolidated income statement

D.Only the parent company will report a gain in 2010

E.The subsidiary will report a gain in 2007

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39. An intercompany sale took place whereby the transfer price exceeded the book value of a depreciable asset. Which statement is true for the year following the sale?

A.A worksheet entry is made with a debit to gain for a downstream transfer

B.A worksheet entry is made with a debit to gain for an upstream transfer

C. A worksheet entry is made with a debit 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 a downstream transfer

E.No worksheet entry is necessary

40. An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year following the sale?

A.A worksheet entry is made with a debit to retained earnings for an upstream transfer B. A worksheet entry is made with a credit to retained earnings for an upstream transfer

C.A worksheet entry is made with a debit to retained earnings for a downstream transfer

D.A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer

41. An intercompany 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?

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

42. Which of the following statements is true concerning an intercompany transfer of a depreciable asset?

A.Non-controlling interest in subsidiary's net income is never affected by a gain on the transfer

B.Non-controlling interest in subsidiary's net income is always affected by a gain on the transfer

C.Non-controlling interest in subsidiary's net income is affected by a downstream gain only

D. Non-controlling interest in subsidiary's net income is affected only when the transfer is upstream

E.Non-controlling interest in subsidiary's net income is increased by an upstream gain in the year of transfer

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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 intercompany purchases. Gargiulo was acquired on January 1, 2009.

Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.

43. Compute the income from Gargiulo reported on Posito's books for 2009.

A.$76,500 B.$77,130 C. $75,870 D.$75,600 E.$75,800 Difficulty: Medium Hoyle - Chapter 05 #44

(48)

46. Compute the non-controlling interest in Gargiulo's net income for 2009. A. $6,970 B.$7,000 C.$7,030 D.$6,270 E.$6,230 Difficulty: Medium Hoyle - Chapter 05 #46

47. Compute the non-controlling interest in Gargiulo's net income for 2010.

48. Compute the non-controlling interest in Gargiulo's net income for 2011.

A.$9,400 B.$9,375 C. $9,425 D.$9,325 E.$8,485 Difficulty: Medium Hoyle - Chapter 05 #48

49. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2009? A. $300 B.$240 C.$2,000 D.$1,600 E.$270 Difficulty: Medium Hoyle - Chapter 05 #49

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50. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2010? A. $1,000 B.$800 C.$3,000 D.$2,400 E.$900 Difficulty: Medium Hoyle - Chapter 05 #50

51. For consolidation purposes, what amount would be debited to cost of goods sold for consolidation (worksheet entry G) in 2011? A.$600 B. $750 C.$3,760 D.$3,000 E.$675 Difficulty: Medium Hoyle - Chapter 05 #51

52. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2009? A. $0 B.$1,600 C.$300 D.$240 E.$270 Difficulty: Medium Hoyle - Chapter 05 #52

53. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2010? A.$240 B. $300 C.$2,000 D.$1,600 E.$270 Difficulty: Medium Hoyle - Chapter 05 #53

(50)

54. For consolidation purposes, what amount would be debited to retained earnings for consolidation (worksheet entry G) in 2011? A.$3,000 B.$2,400 C. $1,000 D.$800 E.$900 Difficulty: Medium Hoyle - Chapter 05 #54

Patti Company holds 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.

55. Compute consolidated sales.

A.$10,000,000 B.$10,126,000 C. $10,140,000 D.$10,200,000 E.$10,260,000 Difficulty: Medium Hoyle - Chapter 05 #55

56. Compute consolidated cost of goods sold.

A.$7,500,000 B.$7,600,000 C.$7,615,000 D. $7,604,500 E.$7,660,000 Difficulty: Medium Hoyle - Chapter 05 #56

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57. Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales. A.$10,000,000 B.$10,126,000 C.$10,140,000 D.$10,200,000 E.$10,260,000 Difficulty: Medium Hoyle - Chapter 05 #57

On April 1, 2009 Wilson Company, a 90% owned subsidiary of Simon Company, bought equipment from Simon for $68,250. On January 1, 2009, Simon realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1, 2009.

The following data are available pertaining to Wilson's income and dividends:

58. Compute the gain on transfer of equipment reported by Simon for 2009. A. $19,500 B.$18,250 C.$11,750 D.$38,250 E.$37,500 Difficulty: Hard Hoyle - Chapter 05 #58

59. Compute the amortization of gain for 2009 for consolidation purposes.

A.$1,950 B.$1,825 C. $1,500 D.$2,000 E.$5,250 Difficulty: Hard Hoyle - Chapter 05 #59

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60. Compute the amortization of gain for 2010 for consolidation purposes. A.$1,950 B.$1,825 C.$2,000 D.$1,500 E.$7,000 Difficulty: Medium Hoyle - Chapter 05 #60

61. Compute the amortization of gain for 2011 for consolidation purposes.

62. Compute Simon's share of income from Wilson for consolidation for 2009. A. $72,000 B.$90,000 C.$73,575 D.$73,800 E.$72,500 Difficulty: Hard Hoyle - Chapter 05 #62

63. Compute Simon's share of income from Wilson for consolidation for 2010.

A.$108,000 B. $110,000 C.$106,000 D.$109,825 E.$109,800 Difficulty: Hard Hoyle - Chapter 05 #63

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64. Compute Simon's share of income from Wilson for consolidation for 2011. A.$118,825 B.$115,000 C.$117,000 D. $119,000 E.$118,800 Difficulty: Hard Hoyle - Chapter 05 #64

On January 1, 2009, 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 2009 and 2010, respectively.

65. Compute the gain recognized by Smeder Company relating to the equipment for 2009.

A.$36,000 B.$34,000 C. $12,000 D.$10,000 E.$0 Difficulty: Medium Hoyle - Chapter 05 #65

66. Compute Collins' share of Smeder's net income for 2009.