Chapter 5 Exam 2

31 Questions | By StateboardCos | Updated: Mar 21, 2022 | Attempts: 436

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1.

1. On November 8, 2018, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized?
- A.
  
  A) Proportionately over a designated period of years.
- B.
  
  B) When Wood Co. sells the land to a third party.
- C.
  
  C) No gain may be recognized.
- D.
  
  E) When Wood Co. begins using the land productively.
2.

2- Edgar Co. acquired 60% of Stendall Co. on January 1, 2018. During 2018, Edgar made several sales of inventory to Stendall. The cost and sales price of the goods were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at the end of 2018. Consolidated cost of goods sold for 2018 was $2,140,000 due to a consolidating adjustment for intra-entity transfers less intra-entity gross profit in Stendall’s ending inventory. How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Stendall to Edgar?
- A.
  
  A) Consolidated cost of goods sold would have remained $2,140,000.
- B.
  
  B) Consolidated cost of goods sold would have been more than $2,140,000 because of the controlling interest in the subsidiary.
- C.
  
  Consolidated cost of goods sold would have been less than $2,140,000 because of the noncontrolling interest in the subsidiary.
- D.
  
  The effect on consolidated cost of goods sold cannot be predicted from the information provided.
3.

3. On January 1, 2018, Race Corp. acquired 80% of the voting common stock of Gallow Inc. During the year, Race sold to Gallow for $450,000 goods that cost $330,000. At year-end, Gallow owned 15% of the goods transferred. Gallow reported net income of $204,000, and Race's net income was $806,000. Race decided to use the equity method to account for this investment. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest?
- A.
  
  A) $ 3,600.
- B.
  
  B) $22,800.
- C.
  
  C) $30,900.
- D.
  
  D) $32,900.
- E.
  
  E) $40,800.
4.

4. Webb Co. acquired 100% of Rand Inc. on January 5, 2018. During 2018, Webb sold goods to Rand for $2,400,000 that cost Webb $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.
  
  A) $17,200,000.
- B.
  
  B) $15,040,000.
- C.
  
  C) $14,800,000.
- D.
  
  D) $15,400,000.
- E.
  
  E) $14,560,000.
5.

5. Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2017. During 2017, Gentry sold Gaspard Farms $625,000 of goods, which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2018, 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 2018, the cost of goods sold totaled $5,400,000 for Gentry, and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for 2018?
- A.
  
  A) $6,600,000.
- B.
  
  B) $6,604,000.
- C.
  
  C) $5,620,000.
- D.
  
  D) $5,596,000.
- E.
  
  E) $5,625,000.
6.

6. Justings Co. owned 80% of Evana Corp. During 2018, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. For purposes of the December 31, 2018 consolidated financial statements, at what amount should the land be reported?
- A.
  
  A) $17,600.
- B.
  
  B) $22,000.
- C.
  
  C) $48,000.
- D.
  
  D) $56,000.
- E.
  
  E) $70,000.
7.

7- During 2017, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. For consolidation reporting purposes, when is the $14,000 intra-entity gross profit recognized?
- A.
  
  A) When goods are transferred to a third party by Lord.
- B.
  
  B) When Lord pays Von for the goods.
- C.
  
  C) When Von sold the goods to Lord.
- D.
  
  D) When Lord receives the goods.
- E.
  
  E) No gain can be recognized since the transfer was between related parties.
8.

8- Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2017, 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, 2018, 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 transfers, which affected the companies' land accounts during 2017. What is the consolidated balance for land on the 2018 balance sheet?
- A.
  
  A) $672,000.
- B.
  
  B) $690,000.
- C.
  
  C) $755,000.
- D.
  
  D) $737,000.
- E.
  
  E) $654,000.
9.

9- . Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2018. 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 held $60,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2018, is:
- A.
  
  A) $15,000.
- B.
  
  B) $20,000.
- C.
  
  C) $32,500.
- D.
  
  D) $30,000.
- E.
  
  E) $110,000.
10.

10- Prince Co. owned 80% of Kile Corp.'s common stock. During October 2018, Kile sold merchandise to Prince for $140,000. At December 31, 2018, 50% of this merchandise remained in Prince's inventory. For 2018, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of intra-entity gross profit remaining in ending inventory at December 31, 2018 that should be eliminated in the consolidation process is:
- A.
  
  A) $28,000.
- B.
  
  B) $56,000.
- C.
  
  C) $22,400.
- D.
  
  D) $21,000.
- E.
  
  E) $42,000.
11.

11- Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2016, 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, 2018, 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. For consolidation purposes, what is the Excess Depreciation (ED entry) for this building for 2018?
- A.
  
  A) Accumulated Depreciation 7,000 Depreciation expense 7,000
- B.
  
  B) Accumulated Depreciation 4,900 Depreciation Expense 4,900
- C.
  
  C) Depreciation Expense 7,000 Accumulated Depreciation 7,000
- D.
  
  D) Depreciation Expense 4,900 Accumulated Depreciation 4,900
- E.
  
  E) Accumulated Depreciation 42,000 Depreciation Expense 42,000
12.

12- On January 1, 2018, 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, 2018, before preparing the consolidated worksheet, the financial statements appeared as follows: Pride, Inc. Strong Corp. Revenues $ 420,000 $280,000 Cost of goods sold (196,000) (112,000) Operating expenses (28,000) (14,000) Net income $ 196,000 $154,000 Retained earnings, 1/1/18 $ 420,000 $210,000 Net income (above) 196,000 154,000 Dividends paid 0 0 Retained earnings, 12/31/18 $ 616,000 $364,000 Cash and receivables $ 294,000 $126,000 Inventory 210,000 154,000 Investment in Strong Corp 364,000 0 Equipment (net) 616,000 420,000 Total assets $1,484,000 $700,000 Liabilities $ 588,000 $196,000 Common stock 280,000 140,000 Retained earnings, 12/31/18 (above) 616,000 364,000 Total liabilities and stockholders’ equity $1,484,000 $700,000 13- During 2018, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of the inventory purchase price had been remitted to Pride by Strong at year-end. As of December 31, 2018, 60% of these goods remained in the company's possession. What is the total of consolidated revenues?
- A.
  
  A) $700,000.
- B.
  
  B) $644,000.
- C.
  
  C) $588,000.
- D.
  
  D) $560,000.
- E.
  
  E) $840,000.
13.

14- Strickland Company sells inventory to its parent, Carter Company, at a profit during 2017. Carter sells one-third of the inventory in 2017 In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate the intra-entity transfer of inventory?
- A.
  
  A) Retained earnings.
- B.
  
  B) Cost of goods sold.
- C.
  
  C) Inventory.
- D.
  
  D) Investment in Strickland Company.
- E.
  
  E) Sales.
14.

15- In the consolidation worksheet for 2018, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following accounts would be debited to defer unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers?
- A.
  
  A) Retained earnings.
- B.
  
  B) Cost of goods sold.
- C.
  
  C) Inventory.
- D.
  
  D) Investment in Strickland Company.
- E.
  
  E) Sales.
15.

16- Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2017. With respect to one-third of the inventory sold to Fisher, Walsh accounts for it using the equity method of accounting. In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate the intra-entity transfer of inventory?
- A.
  
  A) Retained earnings.
- B.
  
  B) Cost of goods sold.
- C.
  
  C) Inventory.
- D.
  
  D) Investment in Fisher Company.
- E.
  
  E) Sales.
16.

17- Which of the following statements is true regarding an intra-entity transfer of land?
- A.
  
  A) A loss is always recognized but a gain is deferred in a consolidated income statement.
- B.
  
  B) A loss and a gain are deferred until the land is sold to an outside party.
- C.
  
  C) A loss and a gain are always recognized in a consolidated income statement.
- D.
  
  D) A gain is always recognized but a loss is deferred in a consolidated income statement.
- E.
  
  E) Recognition of a gain or loss is deferred by adjusting stockholders' equity through comprehensive income.
17.

18- Parent sold land to its subsidiary resulting in a gain in 2016, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2019. Which of the following statements is true?
- A.
  
  A) A gain will be recognized in the consolidated income statement in 2016.
- B.
  
  B) A gain will be recognized in the consolidated income statement in 2019.
- C.
  
  C) No gain will be recognized in the 2019 consolidated income statement.
- D.
  
  D) Only the parent company will recognize a gain in 2019.
- E.
  
  E) The subsidiary will recognize a gain in 2016.
18.

19- An intra-entity transfer of a depreciable asset took place whereby the transfer price exceeded the book value of the asset. Which statement is true with respect to the year following the year in which the transfer occurred?
- A.
  
  A) A worksheet entry is made with a debit to gain for a downstream transfer.
- B.
  
  B) A worksheet entry is made with a debit to gain for an upstream transfer.
- C.
  
  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.
  
  D) A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment.
- E.
  
  E) No worksheet entry is necessary.
19.

20- 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. Compute consolidated sales.
- A.
  
  A) $10,000,000.
- B.
  
  B) $10,126,000.
- C.
  
  C) $10,140,000.
- D.
  
  D) $10,200,000.
- E.
  
  E) $10,260,000.
20.

21- Wilson owned equipment with an estimated life of 10 years when the equipment was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2017. On January 1, 2017, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2017 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 declared: 2017 2018 2019 Net income $100,000 $120,000 $130,000 Dividends declared 40,000 50,000 60,000 What amount should be recorded on Wilson’s books as gain on the transfer of equipment, prior to preparing consolidating entries?
- A.
  
  A) $19,500.
- B.
  
  B) $18,250.
- C.
  
  C) $11,750.
- D.
  
  D) $38,250.
- E.
  
  E) $37,500.
21.

22- On January 1, 2017, 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 2017 and 2018, respectively. All net income effects of the intra- entity transfer are attributed to the seller for consolidation purposes. What amount of gain should be reported by Smeder Company relating to the equipment for 2017 prior to making consolidating entries?
- A.
  
  A) $36,000.
- B.
  
  B) $34,000.
- C.
  
  C) $12,000.
- D.
  
  D) $10,000.
- E.
  
  E) $ 0.
22.

23- Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2017, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2017 and 2018, respectively. Leo uses the equity method to account for its investment. Compute the gain or loss on the intra-entity transfer of land that should be reported on the books of Stiller prior to consolidation.
- A.
  
  A) $15,000 loss.
- B.
  
  B) $15,000 gain.
- C.
  
  C) $50,000 loss.
- D.
  
  D) $50,000 gain.
- E.
  
  E) $65,000 gain.
23.

Pace Corporation acquired 100 percent of Spin Company's common stock on January 1, 2009. Balance sheet data for the two companies immediately following the acquisition follow: At the date of the business combination, the book values of Spin's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, and land, which had a fair value of $50,000. The fair value of land for Pace Corporation was estimated at $80,000 immediately prior to the acquisition. 24. Based on the preceding information, at what amount should total land be reported in the consolidated balance sheet prepared immediately after the business combination?
- A.
  
  A. $130,000
- B.
  
  B. $105,000
- C.
  
  C. $115,000
- D.
  
  D. $120,000
24.

25. Based on the preceding information, what amount of total assets will appear in the consolidated balance sheet prepared immediately after the business combination?
- A.
  
  A. $756,000
- B.
  
  B. $735,000
- C.
  
  C. $750,000
- D.
  
  D. $642,000
- E.
  
  Option 5
25.

27- On January 1, 2018, Musial Corp. sold equipment to Matin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment 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 2018 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment.
- A.
  
  378,000
- B.
  
  Option 2
- C.
  
  Option 3
- D.
  
  Option 4