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Strayer University ACC 410 Chapter 7 Questions And Answers.pdf

Strayer University ACC 410 Chapter 7 Questions And A Ch7Student: ___________________________________________________________________________Rhett Corporation acquired 80 percent of Ennis Corporation's common stock at underlying book value. The companies reported the following information for the years 2007 and 2008.During 2007, one company sold inventory to the other for $100,000. The inventory originally costthe transferring affiliate $80,000. As of the end of 2007, 30 percent of the inventory exchanged in the intercompany transaction remained in the purchasing affiliate's ending inventory. In 2008, the remaining inventory was sold to unrelated parties for $50,000.1. Consider the information given above. If the intercompany sale was downstream, by what amount must inventory be reduced in the consolidation workpaper to reflect the correct balance in the consolidated balance sheet at December 31, 2007?A. $ 0.B. $ 6,000. C. $20,000. D. $30,000.2. Consider the information given above. If the intercompany sale was downstream, 2007 consolidated net income should be:A. $465,600. B. $475,600. C. $476,800. D. $481,600.3. Consider the information given above. If the intercompany sale was upstream, total revenue reported in the consolidated income statement for 2007 should be:A. $1,180,000. B. $1,280,000. C. $1,700,000. D. $1,800,000.4. Consider the information given above. If the intercompany sale was upstream, 2007 consolidated net income should be:A. $465,600. B. $475,600. C. $476,800. D. $481,600.5. Consider the information given above. If the intercompany sale was upstream, 2008 consolidated net income should be:A. $485,600. B. $490,400. C. $495,200. D. $496,400.6. Consider the information given above. If the intercompany sale was upstream, total consolidated cost of goods sold for 2008 should be:A. $926,000. B. $920,000. C. $915,200. D. $914,000.7. Consider the information given above. If the intercompany sale was upstream, what amount of income would be assigned to the noncontrolling interest in the 2008 consolidated income statement?A. $41,600. B. $38,800. C. $37,600. D. $36,400.8. Consolidated net income may include the parent's separate operating income plus the parent's share of the subsidiary's reported net income:A. plus the parent's share of unrealized profit in upstream intercompany sales of inventory made during the current year.B. plus the parent's share of profit realized this year from upstream intercompany sales of inventory made last year.C. minus unrealized profit in downstream intercompany sales of inventory made during the current year.D. minus the parent's share of profit realized this year from upstream intercompany sales of inventory madelast year.9. Consolidated net income for a parent and its 80 percent owned subsidiary should be computed by eliminating:Aall unrealized profit in downstream intercompany inventory sales, and the controlling interest's share of . unrealized profit in upstream intercompany inventory sales made during the current year.Ball unrealized profit in downstream intercompany inventory sales, and the noncontrolling interest's share . of unrealized profit in upstream inventory sales made during the current year.Cthe controlling interest's share of unrealized profit in downstream intercompany sales, and the controlling . interest's share of unrealized profit in upstream sales made during the current year.Dthe controlling interest's share of unrealized profit in downstream intercompany sales, and the. noncontrolling interest's share of unrealized profit in upstream sales made during the current year.10. Asubsidiarymadesalesofinventorytoitsparentataprofitthisyear.Theparent,inturn,soldallbut20 percent of the inventory to unaffiliated companies, recognizing a profit. The amount that should be reported as cost of goods sold in the consolidated income statement prepared for the year should be:A. the amount reported as intercompany sales by the subsidiary.B.the amount reported as intercompany sales by the subsidiary minus unrealized profit in the endinginventory of the parent.C. the amount reported as cost of goods sold by the parent minus unrealized profit in the ending inventoryof the parent.D. the amount reported as cost of goods sold by the parent.11. During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary. The subsidiary also makes sales of inventory at a profit to its parent during the same year. Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another. Consolidated revenues for the year should exclude:A. 80 percent of the total revenues from intercompany sales. B. total revenues from intercompany sales.C. only the revenues from the subsidiary's intercompany sales. D. only the revenues from the parent's intercompany sales.12. Bothupstreamanddownstreamintercompanysalesbetweenaparentandits80percentownedsubsidiary have been made at a profit during last year and this year. Both the parent and subsidiary had beginning inventories from last year's sales, all of which were sold this year. They both had ending inventories this year from this year's intercompany sales. Net income assigned to the noncontrolling interest should include:A.80 percent of the profit in the parent's beginning inventory plus 20 percent of the profit in the parent's ending inventory.B.80 percent of the profit in the parent's beginning inventory minus 20 percent of the profit in the parent's ending inventory.C.20 percent of the profit in the parent's beginning inventory minus 20 percent of the profit in the parent's ending inventory.D. 20 percent of the profit in the parent's beginning inventory plus 20 percent of the profit in the parent's ending inventory.Brae Corporation owns 80 percent of the common stock of Glen Corporation, purchased originally atbook value. During 2008, one company sold $300,000 of merchandise to the other; the merchandise originally had cost the selling affiliate $250,000. None of the merchandise transferred had been resold by the end of 2008. For the year 2008, Brae reported sales of $1,600,000, cost of goods sold of $900,000, and operating income, exclusive of investment income, of $400,000; Glen reported sales, cost of goods sold, and net income of $1,100,000, $600,000, and $280,000, respectively. No dividends were declared by either company.13. Based on the information given above, the amount that should be reported in the 2008 consolidated income statement for sales is:A. $2,400,000. B. $2,450,000. C. $2,460,000. D. $2,700,000.14. Based on the information given above, the amount that should be reported in the 2008 consolidated income statement for cost of goods sold is:A. $1,200,000. B. $1,250,000. C. $1,290,000. D. $1,500,000.15. Based on the information given above, the amount of intercompany profit from the merchandise transfer that should be eliminated in the workpaper to prepare a full set of consolidated financial statements for 2008 is:A. $60,000. B. $50,000. C. $40,000. D. $10,000.16. Considertheinformationgivenabove.Iftheintercompanysalewasdownstream,whatamountshouldbe reported in the 2008 consolidated income statement as consolidated net income?A. $680,000. B. $624,000. C. $584,000. D. $574,000.17. Considertheinformationgivenabove.Iftheintercompanysalewasdownstream,whatistheamountof income that should be assigned to the noncontrolling interest in 2008?A. $136,000. B. $126,000. C. $ 56,000. D. $ 46,000.18. Considertheinformationgivenabove.Iftheintercompanysalewasupstream,whatamountwouldbe reported in the 2008 consolidated income statement as consolidated net income?A. $584,000. B. $592,000. C. $640,000. D. $680,000.19. Considertheinformationgivenabove.Iftheintercompanysalewasupstream,whatistheamountof income that should be assigned to the noncontrolling interest in 2009?A. $10,000. B. $46,000. C. $48,000. D. $56,000.20. Basedontheinformationgivenabove,bywhatamountwillinventoryonthe2008consolidatedbalance sheet differ from the sum of the amounts reported on the two companies' separate financial statements?A. $40,000 higher. B. $40,000 lower. C. $50,000 higher. D. $50,000 lower.Bugle Company sold inventory to its 60-percent-owned subsidiary for $600,000 during 2008; the inventory originally had cost Bugle $420,000. None of the inventory has been resold to unrelated parties by the end of 2008.21. Refer to the information give above. In the three-part consolidation workpaper needed to prepare consolidated financial statements for 2008, which elimination entry most likely will be found with respect to the intercompany inventory transaction?A.B.C. D.22. Based on the information given above, the amount of unrealized profit in inventory arising from the intercompany sale is:A. $180,000. B. $108,000. C. $ 72,000. D. $ 0.23. Refertotheinformationgivenabove.Byhowmuchwouldconsolidatednetincomebedifferentifthe intercompany inventory sale had been upstream rather than downstream?A. $ 0.B. $ 72,000. C. $108,000. D. $180,000.24. Refer to the information given above. By how much would the total amount assigned to the noncontrolling interest in the December 31, 2008, consolidated balance sheet change if the intercompany inventory sale had been upstream rather than downstream?A. $ 0.B. $ 72,000. C. $108,000. D. $180,000.During 2008, Highland Corp., a 90-percent-owned subsidiary, sold inventory to its parent for $700,000; the inventory originally had cost Highland $500,000. By the end of 2008, only one-fourth of the inventory had been resold to unrelated parties. For 2008, the two companies reported the following:25. Basedontheinformationgivenabove,whatistheamountoftheunrealizedintercompanyprofitattheend of 2008?A. $200,000. B. $150,000. C. $135,000. D. $ 50,000.26. Considertheinformationgivenabove.BywhatamountshouldinventoryreportedintheDecember31, 2008, consolidated balance sheet exceed the inventory that would have been reported by the separate companies if there had been no intercompany transfer?A. $150,000 B. $135,000 C. $ 50,000 D. $ 027. Considertheinformationgivenabove.Bywhatamountshouldsalesbeadjustedinthe2008consolidation workpaper as a result of the intercompany sale?A. No adjustment is necessary. B. $200,000 decrease.C. $700,000 increase.D. $700,000 decrease.28. Consider the information given above. What adjustment with respect to cost of goods sold should appear in the 2008 consolidation workpaper as a result of the intercompany sale?A. $500,000 credit B. $450,000 credit C. $150,000 debit D. $550,000 credit29. Based on the information given above, 2008 consolidated net income should be:A. $1,400,000. B. $1,350,000. C. $1,250,000. D. $1,215,000.30. Considertheinformationgivenabove.Howwould2008consolidatednetincomebedifferentifthe intercompany sale had been downstream?A. $15,000 less B. $15,000 more C. $20,000 more D. $20,000 less31. Basedontheinformationgivenabove,theincomeassignedtothenoncontrollinginterestfor2008, following the upstream sale of inventory, is:A. $140,000. B. $ 50,000. C. $ 35,000. D. $ 30,000.32. Consider the information given above. How would the income assigned to the noncontrolling interest in 2008 be different had the intercompany sale been downstream?A. $20,000 less B. $20,000 more C. $15,000 less D. $15,000 more33. Whenaparentanditssubsidiaryuseaperiodicinventorysystemratherthanaperpetualsystem,theincome 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. IB. IIC. Both I or IID. Neither I nor II34. Aparentandsubsidiarybothusetheperiodicinventorysystem.When,theparentcompanysellsinventory to its subsidiary at a profit and the subsidiary resells only part of the inventory during the year to unrelated parties, the consolidated workpaper elimination entry or entries related to the intercompany sales will contain a:A. credit to Cost of Goods Sold. B. credit to Purchases.C. debit to Cost of Goods Sold. D. debit to Purchases.35. Whenthereareintercompanysalesofinventoryduringtheyearandathree-partconsolidationworkpaperis 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 or II.D. Neither I nor II.On December 31, 2007, Alaska Company purchased 75 percent of the common stock of Anton Corporation for $1,500,000. On that date, Anton had $900,000 of common stock outstanding, $1,500,000 of additional paid-in capital, and $600,000 of retained earnings. During the following year, Anton sold inventory to Alaska for $140,000; the inventory originally had cost Anton $100,000. By the end of 2008, all of the inventory had been resold to unrelated parties except 20 percent. Anton reported net income of $280,000 for 2003 and paid no dividends.36. Consider the information given above. If Alaska accounts for its investment in Anton using the cost method, the workpaper elimination of the investment account at December 31, 2008, will total:A. $1,500,000. B. $1,702,000. C. $1,704,000. D. $1,710,000.37. Consider the information given above. If Alaska accounts for its investment in Anton using the fully adjusted equity method, the workpaper elimination of the investment account at December 31, 2008, will total:A. $1,500,000. B. $1,702,000. C. $1,704,000. D. $1,710,000.38. BarnardCorporationowns90percentofthecommonstockofHudsonCompany.During2008,Hudson sold inventory to Barnard for $240,000. The inventory originally cost Hudson $200,000. Barnard resold all of the inventory during the year except for 30 percent, which remained in ending inventory. For the year ended December 31, 2008, Barnard reported operating income of $1,020,000, and Hudson reported net income of $960,000. No dividends were paid by either company.Required: (a.) Prepare the necessary eliminating entries relating to the intercompany transfer of inventory that would appear in a three-part consolidation workpaper prepared on December 31, 2008.(b.) Compute consolidated net income for the year ended December 31, 2008.39. Zagcoobtained80percentcontrolofDubcoonJanuary1,2003.Ofthe$60,000purchasedifferential, $20,000 was allocated to a patent with a ten-year estimated life, and $40,000 was allocated to machinery with a five-year life. On December 31, 2007, Zagco sold equipment with a book value of $20,000 and remaining life of four years to Dubco at a loss of $12,000.At the beginning of 2008, Dubco held inventory acquired from Zagco in 2007. The inventory included $4,000 of intercompany profit and was sold to an unaffiliated company in 2008 by Dubco for $6,000 more than Dubco's cost. Also in 2008, Dubco sold inventory costing $30,000 to Zagco for $37,000; one-half of this inventory is still held by Zagco at the end of 2008.For the year 2008, Zagco reported separate operating income and dividends of $90,000 and $30,000, respectively, while Dubco reported net income of $50,000 and dividends of $10,000.Required: Compute consolidated net income for the year 2008.40. KellyCompanysoldinventoryfor$240,000toits80percent-ownedsubsidiary,RobinCompanyduring 2008. Kelly prices its inventory at 150 percent of cost. By the end of 2008, Robin Company had sold 75 percent of the inventory to outside parties. Kelly reported operating income of $1,200,000 for 2008; Robin reported net income of $850,000.Required:(a.) Give the entry needed in a three-part consolidation workpaper to eliminate the effects of the intercompany transfer of inventory.(b.) Compute consolidated net income for the year 2008.(c.) Compute the amount of income that should be assigned to the noncontrolling interest for 2008.41. On January 1, 2007, Platte Company purchased 80 percent of the common stock of River Company. The purchase resulted in a differential of $120,000, half of which was attributed to a patent, with the remainder assigned to inventory. The patent is amortized over a 5-year period. The inventory to which the differential was assigned was sold during 2007 directly to unrelated parties.During 2007, River sold inventory to Platte for $1,000,000. The cost of the inventory to River was $700,000. By the end of 2007, one-quarter of the inventory had not been resold by Platte; that inventory was resold to unrelated parties during 2008. Both companies use perpetual inventory systems.The results of operations for the year 2007 for the two companies are as follows:Required:(a.) Give the entry needed in a three-part consolidation workpaper prepared at the end of 2007 to eliminate the effects of the intercompany inventory transfer.(b.) Compute 2007 consolidated net income.(c.) Compute the amount of income assigned to the noncontrolling interest in 2007.(d.) Give the entry needed in a three-part consolidation workpaper prepared at the end of 2008 to eliminate the effects of the 2007 intercompany inventory transfer.(e.) Give the entries needed in three-part consolidation workpapers prepared at the end of 2007 and 2008 to eliminate the effects of the intercompany inventory transfer assuming both companies use periodic inventory systems.42. Spoke corporation obtained 80 percent control of Wheel Company on January 1, 2004. Of the $60,000 purchase differential, $20,000 was allocated to goodwill, and $40,000 was allocated to machinery with a five-year life. On December 31, 2007, spoke sold equipment with a book value of $20,000 and remaining life of four years to Wheel at a gain of $12,000.At the beginning of 2008, Spoke held inventory acquired from Wheel in 2007. The inventory included $4,000 of intercompany profit. It was sold to an unaffiliated company in 2008 by Spoke for $6,000 more than Spoke's $25,000 cost. Also in 2008, Spoke sold inventory costing $30,000 to Wheel for $37,000; one- half of this inventory is still held by Wheel at the end of 2008. For the year 2008, Spoke reported separate operating income and dividends of $90,000 and $30,000, respectively, while Wheel reported net income of $50,000 and declared and paid dividends of $10,000.Required:(a.) Prepare the basic equity-method journal entries required on Spoke's books to account for the above transactions in the year 2008.(b.) Prepare the entries needed in a three-part consolidation workpaper to adjust for the effects of the inventory-related transactions in 2008.43. Allen,Incorporatedowns100percentofthecapitalstockofbothWellsCompanyandNixCompany. During 2008, Nix purchased from Wells merchandise inventory that had cost Wells $120,000. Wells sells inventory at 130 percent of its cost. Nix resold all of the inventory to unrelated customers for $240,000 during 2008.Required:(a.) Determine by what amount revenues will be overstated in the consolidated income statement for 2008 if no eliminations are made with respect to the intercompany sales.(b.) Determine the amount that should be eliminated from cost of goods sold when preparing the consolidated income statement for 2008.(c.) Give the appropriate elimination entry or entries needed in a three-part consolidation workpaper to eliminate the effects of the 2008 inventory sales from Wells to Nix.(d.) Assuming that Nix sold only 80 percent of the inventory purchased from Wells to unrelated customers during 2008, give the appropriate consolidation workpaper entries to eliminate the effects of the transaction.44. PetCo obtained 70 percent control of SalCo on January 1, 2004. Of the $60,000 purchase differential, $15,000 was allocated to a patent with a twelve-year estimated life, and $45,000 was allocated to machinery with a five-year life. On December 31, 2008, PetCo sold equipment with a book value of $30,000 and remaining life of four years to SalCo at a loss of $10,000.At the beginning of 2009, SalCo held inventory acquired from PetCo in 2008. The inventory included $5,000 of intercompany profit and was sold to an unaffiliated company in 2008 by SalCo for $6,000 more than SalCo's cost. Also in 2009, SalCo sold inventory costing $30,000 to PetCo for $37,000; one-half of this inventory is still held by PetCo at the end of 2009.For the year 2009, PetCo reported separate operating income and dividends of $90,000 and $30,000, respectively, while SalCo reported net income of $50,000 and dividends of $10,000.Required:a.) For the year 2009 what components for the purchase differential need to be amortized?b.) How much is amortized?c.) What impact does the 2008 equipment sale have on the 2009 consolidated financial statements?d.) What impact does the 2008 inventory sold by PetCo to SalCo have on the 2009 consolidated financial statements?45. PetCo owns 100% of SalCo. During 2007, PetCo sells to SalCo. goods costing $40,000 for $100,000. From these goods, SalCo. sells to Olphia Inc. for $150,000 goods costing $80,000. Also during 2007, Olphia sold to PetCo goods costing them $20,000 for $30,000. All of these goods were part of PetCo's sales to SalCo.Required:a.) Identify any upstream or downstream sales?b.) Explain what amounts, if any, need to be eliminated and why?c.) How much, if any, gross margin is recognized on the above transactions?d.) What amount is reported in PetCo's consolidated financial statements for income to noncontrolling interest?46. On January 1, 2007, Jones Company purchased 90 percent of the outstanding common stock of Smith Corporation at $120,000 over the book value of the shares acquired. All of the purchase differential was related to land held by Smith. At the date of purchase, Smith had common stock outstanding of $520,000, additional paid-in capital of $200,000, and retained earnings of $540,000.During 2007, Smith sold inventory to Jones for $440,000. The inventory originally cost Smith $360,000. By year-end, 30 percent was still in Jones' ending inventory. During 2008, the remaining inventory was resold to an unrelated customer. Both Jones and Smith use perpetual inventory systems.Income and dividend information for both Jones and Smith for 2007 and 2008 are as follows:Required:(a.) Present the workpaper elimination entries necessary to prepare consolidated financial statements for 2007 and 2008, assuming Jones accounts for its investment in Smith stock using the cost method.(b.) Present the workpaper elimination entries necessary to prepare consolidated financial statements for 2007 and 2008, assuming Jones accounts for its investment in Smith stock using the fully adjusted equity method.1. B 2. B 3. C 4. C 5. C 6. D 7. B 8. B 9. A 10. B 11. B 12. C 13. A 14. B 15. B 16. D 17. C 18. A 19. B 20. D 21. D 22. A 23. B 24. B 25. B 26. D 27. D 28. D 29. D 30. A 31. C 32. CCh7 Key33. D34. B35. A36. A37. C38. (a.) Elimination entries:(b.) Consolidated net income:39.40. (a.) Elimination entry:(b.) Consolidated net income:(c.) Income to noncontrolling interest:41. (a.) Elimination entry, 2007:(b.) Consolidated net income, 2007:(c.) Income to noncontrolling interest, 2007:(d.) Elimination entry, 2008:(e.) Elimination entries, periodic inventory system: 2007:2008:42. (a.) Basic Equity-Method Entries:(b.) Elimination Entries for Intercompany Inventory Transactions43. (a.)(b.) (c.)(d.)44. a./b.) The patent is amortized over its 12 year life through 2015. For 2009 this is $1,250.The machinery is depreciated over 5 years which ended on December 31, 2008. There is no impact for 2009.c.) The equipment sale has a$10,000 unrealized loss which amortized over four years. For 2009 this loss decreases consolidated net income.d.) The inventory sold in 2008 to SalCo was sold in 2009. The intercompany profit of $5,000 is realized and recognized by increasing 2009 consolidated net income.45. a.) Downstream: PetCo to SalCo for $100,000.b.) The intercompany sales need to be eliminated. In this manner neither intercompany sales nor cost of goods sold is overstated. Also, PetCo has in ending inventory goods costing them $20,000 for which $12,000 needs to be eliminated as the inventory originally cost PetCo, $8,000. These goods must be recorded in consolidated ending inventory at $8,000.Elimination entries:c.) Olphia is not a subsidiary of PetCo, therefore, none of their transactions are eliminated, however, they will report on their separate Income Statement $10,000 of margin for their sales to PetCo.PetCo would report margin of $118,000.d.) There is no income to noncontrolling interest associated with the downstream sale. Also, SalCo is 100% owned so there is no noncontrolling interest.46. (a.) Cost method elimination entries: 2007:2008:(b.) Fully adjusted equity method elimination entries: 2007:Ch7 SummaryCategoryAACSB: AnalyticAACSB: Communication AACSB: Reflective Thinking AICPA: Decision Making AICPA: Measurement AICPA: Reporting Appendix: AAppendix: BBaker - Chapter 007# of Questions151

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