Test Bank For Advanced Accounting 12th Edition By Floyd A. Beams | VERIFIED 2023/2024

Which of the following is correct? A) No consolidation working paper entry is required for this transaction in 2014. B) A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014. C) A consolidation working paper entry is required each year that Sidd has the land. D) A consolidated working paper entry was required only if the land was held for resale in 2014. Answer: C Objective: LO1 Difficulty: Easy 2) The 2014 unrealized gain from the intercompany sale A) should be recognized in consolidation in 2014 by a working paper entry. B) should be eliminated from consolidated net income by a working paper entry that credits land for $14,000. C) should be eliminated from consolidated net income by a working paper entry that debits land for $14,000. D) should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000. Answer: B Objective: LO1 Difficulty: Easy 3) On January 1, 2014, Bigg Corporation sold equipment with a book value of $20,000 and a 10- year remaining useful life to its wholly-owned subsidiary, Little Corporation, for $30,000. Both Bigg and Little use the straight-line depreciation method, assuming no salvage value. On December 31, 2014, the separate company financial statements held the following balances associated with the equipment: Bigg Little Gain on sale of equipment $10,000 Depreciation expense $3,000 Equipment 30,000 Accumulated depreciation 3,000 A working paper entry to consolidate the financial statements of Bigg and Little on December 31, 2014 included a A) debit to equipment for $10,000. B) credit to gain on sale of equipment for $10,000. C) debit to accumulated depreciation for $1,000. D) credit to depreciation expense for $3,000. Answer: C Objective: LO2 Difficulty: Moderate Use the following information to answer the question(s) below. On December 31, 2014, Pinne Corporation sold equipment with a three-year remaining useful life and a book value of $21,000 to its 70%-owned subsidiary, Sull Company, for a price of $27,000. Pinne bought the equipment four years ago for $49,000. The salvage value is zero. Straight-line depreciation is used by both companies. 4) An elimination entry at December 31, 2014 for the intercompany sale will include a A) credit of $6,000 to Depreciation Expense. B) credit of $6,000 to Accumulated Depreciation. C) credit of $6,000 to Equipment. D) credit of $6,000 to Gain on Sale of Equipment. Answer: C Objective: LO2 Difficulty: Moderate 5) After eliminating/adjusting entries are prepared, what was the intercompany sale impact on the consolidated financial statements for the year ended December 31, 2014? A) Consolidated Net Income Consolidated Net Assets No effect No effect B) Consolidated Net Income Consolidated Net Asset No effect Increased C) Consolidated Net Income Consolidated Net Asset Decreased Decreased D) Consolidated Net Income Consolidated Net Asset Decreased No effect Answer: A Objective: LO2 Difficulty: Moderate 6) On January 2, 2014, Paogo Company sold a truck with book value of $15,000 to Sanall Corporation, its wholly-owned subsidiary, for $20,000. The truck had a remaining useful life of five years with zero salvage value. Both firms use the straight-line depreciation method. If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2014, consolidated depreciation expense for 2014 would be A) $5,000 too high. B) $5,000 too low. C) $1,000 too low. D) $1,000 too high. Answer: D Objective: LO2 Difficulty: Moderate Use the following information to answer the question(s) below. On January 1, 2012, Shrimp Corporation purchased a delivery truck with an expected useful life of five years, and a salvage value of $8,000. On January 1, 2014, Shrimp sold the truck to Pacet Corporation. Pacet assumed the same salvage value and remaining life of three years used by Shrimp. Straight-line depreciation is used by both companies. On January 1, 2014, Shrimp recorded the following journal entry: Debit Credit Cash 50,000 Accumulated depreciation 18,000 Truck 53,000 Gain on Sale of Truck 15,000 Pacet holds 60% of Shrimp. Shrimp reported net income of $55,000 in 2014 and Pacet’s separate net income (excludes interest in Shrimp) for 2014 was $98,000. 7) In preparing the consolidated financial statements for 2014, the elimination entry for depreciation expense was a A) debit for $5,000. B) credit for $5,000. C) debit for $15,000. D) credit for $15,000. Answer: B Explanation: B) ($15,000 gain/ 3 years) Objective: LO2 Difficulty: Moderate 8) In the eliminating/adjusting entries on consolidation working papers for 2014, the Truck account was A) debited for $3,000. B) credited for $3,000. C) debited for $15,000. D) credited for $15,000. Answer: D Objective: LO2 Difficulty: Moderate 9) Controlling interest share in consolidated net income for 2014 was A) $121,000. B) $125,000. C) $131,000. D) $143,000. Answer: B Explanation: B) $98,000 + [($55,000 – $15,000 + $5,000) × 60%] Objective: LO2 Difficulty: Moderate 10) The noncontrolling interest share for 2014 was A) $18,000. B) $22,000. C) $23,000. D) $27,000. Answer: A Explanation: A) ($55,000 – $15,000 + $5,000) × 40% Objective: LO4 Difficulty: Moderate 11) Parrot Company owns all the outstanding voting stock of Southern Manufacturing. On January 1, 2014, Parrot sold machinery to Southern at its book value of $24,000. Parrot had the machinery three years before selling it and used an eight-year straight-line depreciation method, with zero salvage value. Southern will use the straight-line depreciation method, and assumes the machine has five years remaining and no salvage value. In the 2014 consolidating working papers, the depreciation expense A) required no adjustment. B) decreased by $4,800. C) increased by $4,800 D) increased by $8,000. Answer: A Objective: LO2 Difficulty: Moderate 12) Assume an upstream sale of machinery occurs on January 1, 2014. The parent owns 70% of the subsidiary. There is a gain on the intercompany transfer and the machine has five remaining years of useful life and no salvage value. Straight-line depreciation is used. Which of the following statements is correct? A) Noncontrolling interest share for 2014 is equal to: subsidiary income for 2014 multiplied by 30%. B) Noncontrolling interest share for 2014 is equal to: (subsidiary income for 2014 minus the gain on sale plus the excess depreciation expense) multiplied by 30%. C) Noncontrolling interest share for 2014 is equal to: (subsidiary income for 2014 minus the gain on sale) multiplied by 30%. D) Noncontrolling interest share for 2014 is equal to: (subsidiary income for 2014 plus the excess depreciation expense) multiplied by 30%. Answer: B Objective: LO4 Difficulty: Easy 13) Plenny Corporation sold equipment to its 90%-owned subsidiary, Sourdough Corp., on January 1, 2014. Plenny sold the equipment for $100,000 when its book value was $75,000 and it had a 5- year remaining useful life with no expected salvage value. Straight-line depreciation is used by both companies. Separate balance sheets for Plenny and Sourdough included the following equipment and accumulated depreciation amounts on December 31, 2014: Plenny Sourdough Equipment $850,000 $300,000 Less: Accumulated depreciation (200,000) (60,000) Equipment-net $650,000 $240,000 Consolidated amounts for equipment and accumulated depreciation at December 31, 2014 were respectively A) $1,125,000 and $255,000. B) $1,125,000 and $260,000. C) $1,150,000 and $255,000. D) $1,150,000 and $260,000. Answer: A Explanation: A) Combined equipment amounts $1,150,000 Less: gain on sale (25,000) Consolidated equipment balance $1,125,000 Combined Accumulated Depreciation $260,000 Less: Depreciation on gain (5,000) Consolidated Accumulated Depreciation $255,000 Objective: LO2 Difficulty: Moderate 14) Peregrine Corporation acquired an 80% interest in Serine Corporation in 2011 at a time when Serine’s book values and fair values were equal to one another. On January 1, 2014, Serine sold a truck with a $55,000 book value to Peregrine for $100,000. Peregrine is depreciating the truck over 10 years using the straight-line method. The truck has no salvage value. Separate incomes for Peregrine and Serine for 2014 were as follows: Peregrine Serine Sales $1,800,000 $1,050,000 Gain on sale of truck 45,000 Cost of Goods Sold (750,000) (285,000) Depreciation expense (450,000) (135,000) Other expenses (180,000) (450,000) Separate incomes $ 420,000 $ 225,000 Peregrine’s investment income from Serine for 2014 was A) $108,000. B) $144,000. C) $147,600. D) $180,000. Answer: C Explanation: C) Serine reported income $225,000 Less: Intercompany gain on truck (45,000) Plus: Recognition of gain ($45,000 / 10) 4,500 Serine’s adjusted income 184,500 Majority percentage 80% Income from Serine $147,600 Objective: LO4 Difficulty: Moderate 15) Petrol Company acquired an 90% interest in Seadig Corporation on January 1, 2013. On January 1, 2014, Seadig sold a building with a book value of $120,000 to Petrol for $150,000. The building had a remaining useful life of ten years and no salvage value. Straight-line depreciation is used. The separate balance sheets of Petrol and Seadig on December 31, 2014 included the following balances: Petrol Seadig Buildings $500,000 $230,000 Accumulated Depr. – Buildings 180,000 79,000 The consolidated amounts for Buildings and Accumulated Depreciation – Buildings that appeared, respectively, on the balance sheet at December 31, 2014, were A) $700,000 and $256,000. B) $700,000 and $259,000. C) $730,000 and $256,000. D) $730,000 and $259,000. Answer: A Explanation: A) Combined building amounts $730,000 Less: Intercompany gain (30,000) Consolidated building amounts $700,000 Combined Accumulated Depr. $259,000 Less: Recognition of gain (3,000) Consolidated Accumulated Depr. $256,000 Objective: LO2 Difficulty: Moderate 16) Pigeon Corporation purchased land from its 60%-owned subsidiary, Seed Inc., in 2012 at a cost $50,000 greater than Seed’s book value. In 2014, Pigeon sold the land to an outside entity for $20,000 more than Pigeon’s book value. The 2014 consolidated income statement should report a gain on the sale of land of A) $12,000. B) $20,000. C) $42,000. D) $70,000. Answer: D Explanation: D) ($50,000 + $20,000) Objective: LO1 Difficulty: Moderate 17) Pied Imperial Corporation acquired a 90% interest in Somest Corporation in 2012 when Somest’s book values were equivalent to fair values. Somest sold equipment with a book value of $80,000 to Pied for $130,000 on January 1, 2014. Pied is fully depreciating the equipment over a 4- year period by using the straight-line method. Somest reported net income for 2014 was $320,000. Pied’s 2014 income from Somest was A) $249,250. B) $250,500. C) $254,250. D) $288,000. Answer: C Explanation: C) Pied’s share of Somest’s income = ($320,000 × 90%) $288,000 Less: Profit on intercompany sale ($130,000 – $80,000) × 90% = (45,000) Add: Piecemeal recognition of deferred profit ($50,000/4) × 90% 11,250 Income from Somest $254,250 Objective: LO4 Difficulty: Moderate 18) Pogo Corporation acquired a 75% interest in Sperry Corporation on January 1, 2011 at a cost equal to book value and fair value. In the same year Sperry sold land costing $25,000 to Pogo for $50,000. On July 1, 2014, Pogo sold the land to an unrelated party for $85,000. What was the gain on the sale of the land on the consolidated income statement for 2014? A) $25,000 B) $35,000 C) $45,000 D) $60,000 Answer: D Explanation: D) ($85,000 – $25,000) Objective: LO1 Difficulty: Moderate 19) On January 1, 2014 Saffron Co. recorded a $40,000 profit on the upstream sale of some equipment that had a remaining four-year life under the straight-line depreciation method. The equipment has no salvage value. Saffron had separate income of $100,000 in 2014. The parent company, Pommel Incorporated, owns 90% of Saffron. Pommel would report investment income from Saffron in 2014 of A) $54,000. B) $63,000. C) $90,000. D) $126,000. Answer: B Explanation: B) ($100,000 – $40,000 + $10,000) × 90% Objective: LO4 Difficulty: Moderate 20) Parrot Corporation acquired a 70% interest in Swifti Corp. on January 1, 2013, when Swifti’s book values and fair values were equivalent. On January 1, 2014, Swifti sold a building with a book value of $60,000 to Parrot for $80,000. The building had a remaining life of five years, no salvage value, and was depreciated by the straight-line method. Swifti reported net income of $200,000 for 2014. What was the noncontrolling interest share for 2014? A) $54,000 B) $55,200 C) $60,000 D) $128,800 Answer: B Explanation: B) [$200,000 – $20,000 + ($20,000 / 5)] × 30% Objective: LO4 Difficulty: Moderate 6.2 Exercises 1) Pigeon Company owns 80% of the outstanding stock of Spiniflex Corporation, which was purchased on January 1, 2008, when Spiniflex’s book values were equal to its fair values. The amount paid by Pigeon included $16,000 for goodwill. On January 1, 2009, Pigeon purchased a truck for $40,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Pigeon sold the truck to Spiniflex Corporation for $18,000. The truck was estimated to have a three-year remaining life on this date and no salvage value. All affiliates use the straight-line depreciation method. Required: Prepare all relevant entries with respect to the truck. Record the journal entries on Pigeon’s books for 2014. Record the journal entries on Spiniflex’s books for 2014. Prepare the consolidation entries required for Pigeon and subsidiary for 2014 as a result of this transaction. Answer: Requirement 1: Pigeon’s books 01/01/14 Cash 18,000 Accumulated depreciation 25,000 Truck 40,000 Gain on sale 3,000 Requirement 2: Spiniflex’s books 01/01/14 Truck 18,000 Cash 18,000 12/31/14 Depreciation expense 6,000 Accumulated depreciation 6,000 Requirement 3: Consolidation entries 12/31/14 Gain on sale of truck 3,000 Truck 3,000 Accumulated depreciation 1,000 Depreciation expense 1,000 (3,000/3) Objective: LO2 Difficulty: Moderate 2) Several years ago, Pilot International purchased 70% of the outstanding stock of Skyway Incorporated, at a time when Skyway’s book values were equal to its fair values. On January 1, 2011 Skyway purchased a truck for $80,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Skyway sold the truck to Pilot Corporation for $28,000. The truck was estimated to have a five-year remaining life on this date, and no salvage value. All affiliates use the straight-line depreciation method. Required: Prepare all relevant entries with respect to the truck. Record the journal entries on Pilot’s books for 2014. Record the journal entries on Skyway’s books for 2014. Prepare the consolidation entries required for Pilot and subsidiary for 2014 as a result of this transaction. Answer: Requirement 1: Pilot’s books 01/01/14 Truck 28,000 Cash 28,000 12/31/14 Depreciation expense 5,600 Accumulated depreciation 5,600 Requirement 2: Skyway’s books 01/01/14 Cash 28,000 Accumulated depreciation 30,000 Loss on sale of truck 22,000 Truck 80,000 Requirement 3: Consolidation entries 12/31/14 Truck 22,000 Loss on sale of truck 22,000 Depreciation expense 4,400 Accumulated depreciation 4,400 (22,000/5 = 4,400) Objective: LO2 Difficulty: Moderate 3) Pollek Corporation paid $16,200 for a 90% interest in Swamp Corporation on January 1, 2013, when Swamp stockholders’ equity consisted of $10,000 Capital Stock and $3,000 of Retained Earnings. The excess cost over book value was attributable to goodwill. Additional information: Pollek sells merchandise to Swamp at 120% of Pollek’s cost. During 2013, Pollek’s sales to Swamp were $4,800, of which half of the merchandise remained in Swamp’s inventory at December 31, 2013. (The 2013 ending inventory was sold in 2014.) During 2014, Pollek’s sales to Swamp were $6,000 of which 60% remained in Swamp’s inventory at December 31, 2014. At year-end 2014, Swamp owed Pollek $1,500 for the inventory purchased during 2014. Pollek Corporation sold equipment with a book value of $2,000 and a remaining useful life of four years and no salvage value to Swamp Corporation on January 1, 2014 for $2,800. Straight-line depreciation is used. Separate company financial statements for Pollek Corporation and Subsidiary at December 31, 2014 are summarized in the first two columns of the consolidation working papers. The following information is available for 2013: Swamp’s income $4,000 Swamp’s dividends received by Pollek $1,800 Required: Complete the working papers to consolidate the financial statements of Pollek Corporation and subsidiary for the year ended December 31, 2014. Answer: Objective: LO2, 4 Difficulty: Difficult 4) Plower Corporation acquired all of the outstanding voting common stock of the Squab Corporation several years ago when the book values and fair values of Squab’s net assets were equal. On April 1, 2012, Plower sold land that cost $25,000 to Squab for $40,000. Squab resold the land for $45,000 on December 1, 2014. On July 1, 2014, Plower sold equipment with a book value of $10,000 to Squab for $26,000. Squab is depreciating the equipment over a four-year period using the straight-line method. The equipment has no salvage value. Required: The first two columns in the working papers presented below summarize income statement information from the separate company financial statements of Plower and Squab for the year ended December 31, 2014. Fill in the consolidated working paper columns to show how each of the items from the separate company reports will appear in the consolidated income statement for the year ended December 31, 2014.