Advanced Financial Accounting with correct Question and Answered 2024 final exam

Advanced Financial Accounting with correct Question and Answered 2024 final exam A parent loans $100,000 to its subsidiary during 2014, at an annual interest rate of 4%. The subsidiary has not paid the interest at year-end. On the consolidation working paper, eliminating entries include all BUT which one of the following? Credit Interest Payable $4,000. (Explanation: 100,000x.04=4,000 Interest Expense (I-1) DR Loan Pay 100,000 CR Loan Rec. 100,000 (I-2) DR Int. Pay. 4,000 CR Int. Rec. 4,000 (I-3) DR Int. Rev. 4,000 CR Int. Exp. 4,000) A parent sells land to its subsidiary for $25,000, and shows a loss of $4,000. At what amount should the land be shown on the consolidated balance sheet? $29,000 (Explanation: P $29,000-25,000=4,000 Loss on Sale, S $29,000-25,000=4,000 Bargain Purchase; Consolidated Statement shows land is valued at $29,000 and the loss and gain offset each other, leaving the fair value of the land left, $29,000. A subsidiary sells merchandise to its parent at a markup of 25% on cost. In 2014, the parent paid $750,000 for merchandise received from the subsidiary. By yearend 2014, the parent has sold $500,000 of the merchandise to outside customers for $800,000, but still holds the other $250,000 in its ending inventory. Which statement is FALSE concerning the information reported on the 2014 consolidated financial statements? Consolidated Cost of Goods Sold is $500,000 (Explanation: COGS 500,000/1.25=400,000-Is the correct amount on the consolidated books) A parent company sells merchandise to a subsidiary company during 2015 at a price of $1,000,000. The subsidiary company sells all the merchandise to outside customers during 2015 for $1,250,000. The parent always sells to the subsidiary at a markup of 25% on cost. Which statement is TRUE concerning the required consolidation eliminating entries related to these transactions? The eliminating entries will include a reduction in sales revenue to remove intercompany sales. (Explanation: DR Sales 1,000,000 CR COGS 1,000,000) A parent sold land costing $1,000,000 to its subsidiary for $1,200,000 in 2012. The subsidiary still holds the land at the end of 2014. On a working paper prepared to consolidate the financial statements of the parent and subsidiary in 2014, the eliminating entry connected with this land includes a credit to: Land, to restore the land to its original cost (Explanation: DR Gain on sale 200,000 CR Land 200,000 Which restores it to the original cost of 2,000,000) Which statement is TRUE concerning the eliminating entries required for intercompany sales of land from a subsidiary to its parent? If the subsidiary sold the land to its parent in 2012, and the land was sold to outsiders by the parent in 2012, no eliminating entries are required in 2012 (Explanation: Confirmed Profits DO NOT Require Eliminating Entries. That said: If Sub sold Land to Parent for $10,000, say with a $1,000 Gain, then the Parent sold Land to Outside Party for $11,000 with a $1,000 Gain, at year end the consolidated income statement would show Land sold and any Gain or Loss would go on the Income Statement. Journal Entry Sub: DR Cash 10,000 CR Gain 1,000 CR Land 9,000 Journal Entry Parent: DR Cash 11,000 CR Gain 1,000 CR Land 10,000 Consolidated Income Statement Other Gains/Losses: Gain on Sale of Land 2,000) Which statement is TRUE regarding intercompany sales of merchandise? If the subsidiary sells merchandise to the parent (upstream intercompany sale), the No controlling Interest must be increased by its share of Realized Profits in the Parent's Beginning Inventory Parent owns 80% of Sub. Included in Sub's ending inventory is $40,000 in unconfirmed profit. Included in Sub's beginning inventory is $60,000 in unconfirmed profit. What is the effect of the above on Parent's equity method income accrual? $20,000 Increase (Explanation: First of all, the eliminating entries to REMOVE unconfirmed profits to Ending Inventory is the SAME whether the sale was Upstream or Downstream. Unconfirmed profit is removed from the purchaser's Ending Inventory by INCREASING COGS. Unconfirmed intercompany Profits from Ending Inventory are DEDUCTED from Equity Accrual. Entry to remove: (No effect on Sub) DR COGS 40,000 CR Inventory 40,000 Unconfirmed profits in the Ending Inventory of one period means that next period's Beginning Inventory also reflects those profits, so COGS is OVERSTATED at the next consolidation point. Working paper eliminations transfers these Gains into Current Yr.'s income by REDUCING COGS. Unconfirmed intercompany Profits from Beginning Inventory is ADDED to the Equity Accrual. Entry to Remove: Downstream (No effect on Sub. DR Investment in Sub 60,000 CR COGS 60,000 Simple way to solve: Difference in Ending and Beginning: $60,000(Sub's Beg. Inv) - $40,000(Sub's End. Inv.)=$20,000 ADDED to the Parent's Equity Accrual A parent company sells land to its subsidiary in 2012 at an amount above its original cost. In 2015, three years later, the subsidiary sells th