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Question : 11.When preparing consolidated financial statement workpapers, unrealized intercompany gains, as

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

a.the parent and the subsidiary is less than wholly owned.

b.a wholly owned subsidiary.

c.the subsidiary and the subsidiary is less than wholly owned.

  1. the parent of a wholly owned subsidiary.

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

a.recognized in the consolidated statements in the year of the sale.

b.considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidated statements.

c.considered to be unrealized in the consolidated statements until the equipment is sold to a third party.

  1. amortized over a period not less than 2 years and not greater than 40 years.

13.In 2004, P Company sells land to its 80% owned subsidiary, S Company, at a gain of $30,000.  What is the effect of this sale of land on consolidated net income assuming S Company still owns the land at the end of the year?

  1. consolidated net income will be the same as if the sale had not occurred.
  2. consolidated net income will be $30,000 less than it would had the sale not occurred.
  3. consolidated net income will be $24,000 less than it would had the sale not occurred.
  4. consolidated net income will be $30,000 greater than it would had the sale not occurred.

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

  1. no entry because the gain happened prior to this year.
  2. a credit to land for $50,000.
  3. a debit to P’s retained earnings for $50,000.
  4. a debit to S’s retained earnings for $50,000.

15.On January 1, 2003 S Corporation sold equipment that cost $60,000 and had a book value of $24,000 to P Corporation for $30,000.  P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation’s Equity from Subsidiary Income account for 2004?

  1. no effect
  2. increase of $6,000.
  3. decrease of $6,000.
  4. increase of $1,500.

16.P Corporation acquired an 80% interest in S Corporation two years ago at a cost equal to the book value of S.  On January 2, 2004, S sold equipment with a five-year remaining life to P for a gain of $60,000.  S reports net income of $300,000 for 2004 and pays dividends of $100,000.  P’s Equity from Subsidiary Income for 2004 is:

  1. $240,000.
  2. $192,000.
  3. $201,600.
  4. $288,000

17.P Company purchased land from its 80% owned subsidiary at a cost of $20,000 greater than it subsidiary’s book value.  Two years later P sold the land to an outside entity for $10,000 more than it’s cost.  In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:

  1. $10,000
  2. $24,000
  3. $26,000
  4. $30,000

18.On January 1, 2003, P Corporation sold equipment with a 3-year remaining life and a book value of $10,000 to its 70% owned subsidiary for a price of $11,500.  In the consolidated workpapers for the year ended December 31, 2004, an elimination entry for this transaction will include a:

  1. debit to Equipment for $1,500.
  2. debit to Gain on Sale of Equipment for $1,500.
  3. credit to Depreciation Expense for $1,500.
  4. debit to Accumulated Depreciation for $1,000.

19.What is the general format of the elimination entries to reflect intercompany interest or rent?

  1.     Debit expense, credit income
  2.    Debit payable, credit receivable
  3.     Debit income, credit expense
  4.    Debit receivable, credit payable

20.What is realization through usage?

  1.     By decreasing depreciation expense, we increase income and thus realize the unrealized gain
  2.    By increase depreciation expense, we decrease the cost of the asset to its original cost
  3.     By decreasing depreciation expense, we increase cost of goods sold
  4.    By increasing the asset, we realize the gain because the asset is worth more than it was originally

21.Why is accumulated depreciation credited in the elimination entry?

  1.     To eliminate the accumulated depreciation previously recorded by the selling company
  2.    To eliminate the accumulated depreciation previously recorded by the buying affiliate
  3.     To eliminate the accumulated depreciation recorded during the current year by the selling affiliate
  4.    It is part of the entry to restate the asset to its original state to the consolidated entity

 

 

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