M&A - EXAM 3 QUESTIONS AND CORRECT
ANSWERS.
Strickland Company sells inventory to its parent, Carter Company, at a profit during 2023.
Carter sells one-third of the inventory in 2023.
In the consolidation worksheet for 2023, which of the following accounts would be debited
to eliminate unrecognized intra-entity gross profit with regard to the 2023 intra-entity
transfers?
COGS
Strickland Company sells inventory to its parent, Carter Company, at a profit during 2023.
Carter sells one-third of the inventory in 2023.
In the consolidation worksheet for 2023, which of the following accounts would be debited
to eliminate the intra-entity transfer of inventory?
Sales
Pot Company holds 90% of the common stock of Skillet Company. During 2024, Pot
reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet
had sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Pot’s sales were Pot’s sales of merchandise to Skillet for
$140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers
had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross
profit remaining in ending inventory at the end of 2024. What are consolidated sales and
cost of goods sold, respectively for 2024?
1.4 mil and 966k
Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2023.
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 2023, which of the following accounts would be credited
to eliminate the intra-entity transfer of inventory?
,COGS
On January 1, 2024, Pride, Incorporated acquired 80% of the outstanding voting common
stock of Strong Corporation 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 $35,000. Any remaining excess was attributable to
goodwill, which has not been impaired.
As of December 31, 2024, before preparing the consolidated worksheet, the financial
statements appeared as follows:
49,000
Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Compute the equity in earnings of Anderson reported on Philbin's books for 2023.
$62,730
Will Company owned 80% of the voting common stock of Carlton Company. During 2023,
Carlton made frequent sales of inventory to Will. There was deferred intra-entity gross
profit of $50,000 in the beginning inventory and $30,000 of intra-entity gross profit at the
end of the year. Carlton reported net income of $173,000 for 2023. Will decided to use the
equity method to account for the investment. Assuming there are no excess amortizations
associated with the consolidation, and no other intra-entity asset transfers, what is the net
income attributable to the noncontrolling interest for 2023?
38,600
, Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Compute the equity in earnings of Anderson reported on Philbin's books for 2025.
$84,825
Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Assuming there are no excess amortizations associated with the consolidation, and no other
intra-entity asset transfers, compute the net income attributable to the noncontrolling
interest of Anderson for 2024.
$8,430
Prater Incorporated owned 85% of the voting common stock of Harkin Corporation.
During 2024, Harkin made several sales of inventory to Prater. The total selling price was
$215,000 and the cost was $105,000. At the end of the year, 40% of the goods were still in
Prater’s inventory. Harkin’s reported net income was $400,000. Assuming there are no
ANSWERS.
Strickland Company sells inventory to its parent, Carter Company, at a profit during 2023.
Carter sells one-third of the inventory in 2023.
In the consolidation worksheet for 2023, which of the following accounts would be debited
to eliminate unrecognized intra-entity gross profit with regard to the 2023 intra-entity
transfers?
COGS
Strickland Company sells inventory to its parent, Carter Company, at a profit during 2023.
Carter sells one-third of the inventory in 2023.
In the consolidation worksheet for 2023, which of the following accounts would be debited
to eliminate the intra-entity transfer of inventory?
Sales
Pot Company holds 90% of the common stock of Skillet Company. During 2024, Pot
reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet
had sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Pot’s sales were Pot’s sales of merchandise to Skillet for
$140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers
had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross
profit remaining in ending inventory at the end of 2024. What are consolidated sales and
cost of goods sold, respectively for 2024?
1.4 mil and 966k
Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2023.
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 2023, which of the following accounts would be credited
to eliminate the intra-entity transfer of inventory?
,COGS
On January 1, 2024, Pride, Incorporated acquired 80% of the outstanding voting common
stock of Strong Corporation 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 $35,000. Any remaining excess was attributable to
goodwill, which has not been impaired.
As of December 31, 2024, before preparing the consolidated worksheet, the financial
statements appeared as follows:
49,000
Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Compute the equity in earnings of Anderson reported on Philbin's books for 2023.
$62,730
Will Company owned 80% of the voting common stock of Carlton Company. During 2023,
Carlton made frequent sales of inventory to Will. There was deferred intra-entity gross
profit of $50,000 in the beginning inventory and $30,000 of intra-entity gross profit at the
end of the year. Carlton reported net income of $173,000 for 2023. Will decided to use the
equity method to account for the investment. Assuming there are no excess amortizations
associated with the consolidation, and no other intra-entity asset transfers, what is the net
income attributable to the noncontrolling interest for 2023?
38,600
, Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Compute the equity in earnings of Anderson reported on Philbin's books for 2025.
$84,825
Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory
to Philbin at a 25% gross profit rate. The following data are available pertaining
specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on
January 1, 2023.
202320242025Purchases by Philbin$ 8,000$ 12,000$ 15,000Ending inventory on Philbin's
books1,2004,0003,000
Assume the equity method is used. The following data are available pertaining to
Anderson's income and dividends.
202320242025Anderson's net income$ 70,000$ 85,000$ 94,000Dividends paid by
Anderson10,00010,00015,000
Assuming there are no excess amortizations associated with the consolidation, and no other
intra-entity asset transfers, compute the net income attributable to the noncontrolling
interest of Anderson for 2024.
$8,430
Prater Incorporated owned 85% of the voting common stock of Harkin Corporation.
During 2024, Harkin made several sales of inventory to Prater. The total selling price was
$215,000 and the cost was $105,000. At the end of the year, 40% of the goods were still in
Prater’s inventory. Harkin’s reported net income was $400,000. Assuming there are no
