ADVANCED ACCOUNTING ACTUAL
QUESTIONS WITH VERIFIED SOLUTIONS
◉ In the consolidated income statement, the net income attributable
to the noncontrolling interest is affected by
Answer: excess acquisition-date fair value amortizations.
intra-entity gross profits from upstream inventory transfers.
◉ By decreasing COGS, Consolidation Entry *G (Blank)
consolidated net income.
Answer: increases
◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in ending inventories
from downstream sales to an 80% owned affiliate?
Answer: 100% of the intra-entity gross profits in ending inventory
are deferred.
◉ What is the effect on consolidated COGS of intra-entity gross
profits in beginning and ending inventories?
,Answer: Consolidated COGS is increased by intra-entity gross profits
in ending inventory and decreased by intra-entity gross profits in
beginning inventory.
◉ When the parent applies the equity method and routinely
transfers inventory downstream, Consolidation Entry *G
involves a credit to COGS to recognize the intra-entity gross profit in
beginning inventory and a debit to
Answer: the Investment in Subsidiary account.
◉ Which of the following Consolidation Entries has the net effect of
decreasing the current period's consolidated net income?
Answer: G
◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in beginning
inventories from downstream sales to an 80% owned affiliate?
Answer: 100% of the intra-entity gross profits in beginning
inventory are recognized.
◉ In applying the equity method, why does the parent defer 100%
of intra-entity inventory gross profits from downstream transfers
even when owning a controlling, but less-than-100% ownership in
the subsidiary.
,Answer: The 100% deferral ensures that none of the intra-entity
gross profit will be attributable to the noncontrolling interest.
◉ After combining the individually recorded revenues of a parent
and subsidiary, what is the effect on consolidated revenues of intra-
entity inventory transfers?
Answer: Revenues from intra-entity transfers are not included in
consolidated revenues.
◉ When the parent applies the equity method and routinely
transfers inventory downstream, which of the following
consolidation entries are sometimes needed to bring the Investment
in Subsidiary account to a zero balance?
Answer: (*G) for intra-entity gross profits in beginning
inventory.;
(D) for the parent's share of subsidiary dividends declared.
(I) for the equity in subsidiary earnings recognized by the parent.
◉ Which of the following Consolidation Entries has the net effect of
increasing the current period's consolidated net income?
Answer: TI
, ◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in ending inventory
from upstream sales to an 80% owned affiliate?
Answer: 80% of the intra-entity gross profits in ending inventory are
deferred.
◉ For a 40% investment that provides the investor significant
influence, 40% of intra-entity gross profits in ending inventory from
downstream transfers are deferred from the investor's equity
earnings when the equity method is applied. If, instead, the investor
owns a 70% controlling interest in a subsidiary
Answer: 100% of the intra-entity gross profits in ending inventory
from downstream transfers are deferred from the investor's equity
earnings.
◉ When the parent applies the equity method and routinely receives
upstream inventory transfers from a subsidiary, Consolidation Entry
*G involves a credit to COGS to recognize the intra-entity
gross profit in beginning inventory and a debit to
Answer: he subsidiary's retained earnings.
◉ true or false: Intra-entity inventory profits resulting from
upstream transfers affect the consolidated net income allocation to
both the controlling and noncontrolling interests.
Answer: True
QUESTIONS WITH VERIFIED SOLUTIONS
◉ In the consolidated income statement, the net income attributable
to the noncontrolling interest is affected by
Answer: excess acquisition-date fair value amortizations.
intra-entity gross profits from upstream inventory transfers.
◉ By decreasing COGS, Consolidation Entry *G (Blank)
consolidated net income.
Answer: increases
◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in ending inventories
from downstream sales to an 80% owned affiliate?
Answer: 100% of the intra-entity gross profits in ending inventory
are deferred.
◉ What is the effect on consolidated COGS of intra-entity gross
profits in beginning and ending inventories?
,Answer: Consolidated COGS is increased by intra-entity gross profits
in ending inventory and decreased by intra-entity gross profits in
beginning inventory.
◉ When the parent applies the equity method and routinely
transfers inventory downstream, Consolidation Entry *G
involves a credit to COGS to recognize the intra-entity gross profit in
beginning inventory and a debit to
Answer: the Investment in Subsidiary account.
◉ Which of the following Consolidation Entries has the net effect of
decreasing the current period's consolidated net income?
Answer: G
◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in beginning
inventories from downstream sales to an 80% owned affiliate?
Answer: 100% of the intra-entity gross profits in beginning
inventory are recognized.
◉ In applying the equity method, why does the parent defer 100%
of intra-entity inventory gross profits from downstream transfers
even when owning a controlling, but less-than-100% ownership in
the subsidiary.
,Answer: The 100% deferral ensures that none of the intra-entity
gross profit will be attributable to the noncontrolling interest.
◉ After combining the individually recorded revenues of a parent
and subsidiary, what is the effect on consolidated revenues of intra-
entity inventory transfers?
Answer: Revenues from intra-entity transfers are not included in
consolidated revenues.
◉ When the parent applies the equity method and routinely
transfers inventory downstream, which of the following
consolidation entries are sometimes needed to bring the Investment
in Subsidiary account to a zero balance?
Answer: (*G) for intra-entity gross profits in beginning
inventory.;
(D) for the parent's share of subsidiary dividends declared.
(I) for the equity in subsidiary earnings recognized by the parent.
◉ Which of the following Consolidation Entries has the net effect of
increasing the current period's consolidated net income?
Answer: TI
, ◉ How does the equity method adjust the parent's Equity in
Earnings account for intra-entity gross profits in ending inventory
from upstream sales to an 80% owned affiliate?
Answer: 80% of the intra-entity gross profits in ending inventory are
deferred.
◉ For a 40% investment that provides the investor significant
influence, 40% of intra-entity gross profits in ending inventory from
downstream transfers are deferred from the investor's equity
earnings when the equity method is applied. If, instead, the investor
owns a 70% controlling interest in a subsidiary
Answer: 100% of the intra-entity gross profits in ending inventory
from downstream transfers are deferred from the investor's equity
earnings.
◉ When the parent applies the equity method and routinely receives
upstream inventory transfers from a subsidiary, Consolidation Entry
*G involves a credit to COGS to recognize the intra-entity
gross profit in beginning inventory and a debit to
Answer: he subsidiary's retained earnings.
◉ true or false: Intra-entity inventory profits resulting from
upstream transfers affect the consolidated net income allocation to
both the controlling and noncontrolling interests.
Answer: True
