TEST BANK FOR INTERCOMPANY INVENTORY TRANSACTIONS

TEST BANK FOR INTERCOMPANY INVENTORY TRANSACTIONS Intercompany Inventory Transactions Multiple Choice Questions 1. When there are intercompany sales of inventory during the year and a three-part consolidation workpaper is prepared, elimination entries related to the intercompany sales: I. Always are needed. II. Are not needed if all the inventory is resold to unrelated parties prior to the end of the year. A. I B. II C. Both I and II D. Either I or II Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost. During 2008, Venus sold inventory to Mars that it had purchased for $25,000. Mars sold all of this merchandise to unrelated customers for $56,892 during 2008. In preparing combined financial statements for 2008, Earth's bookkeeper disregarded the common ownership of Mars and Venus. 2. Based on the information given above, what amount should be eliminated from cost of goods sold in the combined income statement for 2008? A. $31,250 B. $25,000 C. $56,892 D. $6,250 3. Based on the information given above, by what amount was unadjusted revenue overstated in the combined income statement for 2008? A. $25,000 B. $56,892 C. $31,250 D. $6,250 7-2 4. Global Corporation acquired 85 percent of Local Company's voting shares of stock in 2007. During 2008, Global purchased 50,000 picture tubes for $15 each and sold 28,000 of them to Local for $20 each. Local sold all of the units to unrelated entities prior to December 31, 2008, for $30 each. Both companies use perpetual inventory systems. Which workpaper eliminating entry is needed in preparing consolidated financial statements for 2008 to remove all effects of the intercompany sale? A. Option A B. Option B C. Option C D. Option D 5. When a parent and its subsidiary use a periodic inventory system rather than a perpetual system, the income and asset balances reported in the consolidated financial statements are: I. affected only if there are upstream intercompany sales of inventory. II. affected only if there are downstream intercompany sales of inventory. A. I B. II C. Both I and II D. Neither I nor II 7-3 On January 1, 2008, Parent Company acquired 90 percent ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 2008, Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the entire inventory to an unaffiliated company for $120,000 on November 21, 2008. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 2008. 6. Based on the information given above, what amount of sales will be reported in the 2008 consolidated income statement? A. $62,000 B. $120,000 C. $90,000 D. $58,000 7. Based on the information given above, what amount of cost of goods sold will be reported in the 2008 consolidated income statement? A. $62,000 B. $120,000 C. $90,000 D. $58,000 8. Based on the information given above, what amount of consolidated net income will be assigned to the controlling shareholders for 2008? A. $58,000 B. $59,000 C. $55,000 D. $52,200 7-4 Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 2007, at underlying book value. On that date, the fair value of noncontrolling interest was equal to 10 percent of the book value of Scrooge Corporation. Pilfer purchased inventory from Scrooge for $90,000 on August 20, 2008, and resold 70 percent of the inventory to unaffiliated companies on December 1, 2008, for $100,000. Scrooge produced the inventory sold to Pilfer for $67,000. The companies had no other transactions during 2008. 9. Based on the information given above, what amount of sales will be reported in the 2008 consolidated income statement?