During the preparation of consolidated financial statements for 2009, the following eliminating entry was made: Which of the following statements is correct?. Based on the preceding info
Trang 1Chapter 06 Intercompany Transfers of Services and Noncurrent Assets
Multiple Choice Questions
1 Blue Company owns 70 percent of Black Company's outstanding common stock On
December 31, 2008, Black sold equipment to Blue at a price in excess of Black's carrying amount, but less than its original cost On a consolidated balance sheet at December 31, 2008, the carrying amount of the equipment should be reported at:
A Blue's original cost
B Black's original cost
C Blue's original cost less Black's recorded gain
D Blue's original cost less 70 percent of Black's recorded gain
A unrealized in the second year from upstream sales made in the second year
B realized in the second year from downstream sales made in both years
C realized in the second year from upstream sales made in both years
D both realized and unrealized from upstream sales made in the second year
3 A wholly owned subsidiary sold land to its parent during the year at a gain The parent continues to hold the land at the end of the year The amount to be reported as consolidated net income for the year should equal:
A the parent's separate operating income, plus the subsidiary's net income
B the parent's separate operating income, plus the subsidiary's net income, minus the
Trang 2Sky Corporation owns 75 percent of Earth Company's stock On July 1, 2008, Sky sold a building to Earth for $33,000 Sky had purchased this building on January 1, 2006, for
$36,000 The building's original eight-year estimated total economic life remains unchanged Both companies use straight-line depreciation The equipment's residual value is considered negligible
6 Based on the information provided, while preparing the 2008 consolidated income
statement, depreciation expense will be:
A debited for $750 in the eliminating entries
B credited for $750 in the eliminating entries
C credited for $1500 in the eliminating entries
D debited for $1500 in the eliminating entries
7 Based on the information provided, in the preparation of the 2009 consolidated income
Trang 38 Based on the information provided, in the preparation of a consolidated balance sheet at January 1, 2009, retained earnings will be:
A debited for $6,750 in the eliminating entries
B credited for $6,750 in the eliminating entries
C credited for $7,500 in the eliminating entries
D debited for $7,500 in the eliminating entries
9 Phobos Company holds 80 percent of Deimos Company's voting shares During the
preparation of consolidated financial statements for 2009, the following eliminating entry was made:
Which of the following statements is correct?
A Phobos Company purchased land from Deimos Company during 2009
B Phobos Company purchased land from Deimos Company before January 1, 2009
C Deimos Company purchased land from Phobos Company during 2009
D Deimos Company purchased land from Phobos Company before January 1, 2009
ABC Corporation purchased land on January 1, 2006, for $50,000 On July 15, 2008, it sold the land to its subsidiary, XYZ Corporation, for $70,000 ABC owns 80 percent of XYZ's voting shares
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10 Based on the preceding information, what will be the workpaper eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 2008?
Trang 511 Based on the preceding information, what will be the workpaper eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 2009?
Trang 612 Which workpaper eliminating entry will be made on December 31, 2009, if XYZ
Corporation had initially purchased the land for $50,000 and then sold it to ABC on July 15,
expected to have a 10-year useful life and no salvage value Both companies depreciate equipments on a straight-line basis
13 Based on the preceding information, in the preparation of the 2008 consolidated financial statements, equipment will be:
Trang 714 Based on the preceding information, the gain on sale of the equipment recorded by Mortar for 2008 is:
A debited for $25,000 in the eliminating entries
B credited for $15,000 in the eliminating entries
C debited for $15,000 in the eliminating entries
D credited for $25,000 in the eliminating entries
17 Based on the preceding information, in the preparation of the 2009 consolidated balance sheet, accumulated depreciation will be:
A debited for $160,000 in the eliminating entries
B credited for $160,000 in the eliminating entries
C credited for $135,000 in the eliminating entries
D debited for $135,000 in the eliminating entries
Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 2007 On January 1, 2008, Mortar received $350,000 from Granite for a equipment Mortar had purchased on January 1, 2005, for $400,000 The equipment is expected to have a 10-year useful life and no salvage value Both companies depreciate equipments on a straight-line basis
Trang 818 Based on the preceding information, in the preparation of the 2008 consolidated financial statements, equipment will be:
A debited for $50,000 in the eliminating entries
B credited for $110,000 in the eliminating entries
C credited for $120,000 in the eliminating entries
D debited for $160,000 in the eliminating entries
21 Based on the preceding information, in the preparation of the 2009 consolidated income statement, depreciation expense will be:
A Debited for $40,000 in the eliminating entries
B Credited for $10,000 in the eliminating entries
C Debited for $10,000 in the eliminating entries
D Credited for $40,000 in the eliminating entries
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On January 1, 2007, Servant Company purchased a machine with an expected economic life
of five years On January 1, 2009, Servant sold the machine to Master Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant's voting shares Servant reported net income
of $50,000, and Master reported income from its own operations of $100,000 for 2009 There
is no change in the estimated economic life of the equipment as a result of the intercorporate transfer
23 Based on the preceding information, in the preparation of the 2009 consolidated income statement, depreciation expense will be:
A Debited for $1,000 in the eliminating entries
B Credited for $1,000 in the eliminating entries
C Debited for $15,000 in the eliminating entries
D Credited for $15,000 in the eliminating entries
Trang 1025 Based on the preceding information, income assigned to the noncontrolling interest in the
2009 consolidated income statement will be:
accumulated depreciation of $170,000 Light estimated a $50,000 salvage value and
depreciated the tractor using the straight-line method over 10 years, a policy that Star
continued In Light's December 31, 2009, consolidated balance sheet, this tractor should be included in fixed-asset cost and accumulated depreciation as:
Trang 11Blue Corporation holds 70 percent of Black Company's voting common stock On January 1,
2003, Black paid $500,000 to acquire a building with a 10-year expected economic life Black uses straight-line depreciation for all depreciable assets On December 31, 2008, Blue
purchased the building from Black for $180,000 Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 2008 and 2009, respectively Black
reported net income of $30,000 and $45,000 for 2008 and 2009, respectively
Trang 1232 Which of the following are examples of intercompany balances and transactions that must
be eliminated in preparing consolidated financial statements?
I Security holdings
II Interest and dividends
III Sales and purchases
Parent reported income from its separate operations of $200,000 for 2008
Trang 1334 Based on the preceding information, what amount of gain or loss on sale of land should be reported in the consolidated income statement for 2008?
Big Corporation receives management consulting services from its 92 percent owned
subsidiary, Small Inc During 2007, Big paid Small $125,432 for its services For the year
2008, Small billed Big $140,000 for such services and collected all but $7,900 by year-end Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 2007 and $121,000 in 2008 Big reported $2,567,000 of income from its own separate operations for 2008, and Small reported net income of $695,000
Trang 1438 Based on the preceding information, what amount of receivable/payable should be
eliminated in the 2008 consolidated financial statements?
39 A parent sold land to its partially owned subsidiary during the year at a loss The
subsidiary continues to hold the land at the end of the year The amount to be reported as consolidated net income for the year should equal:
A the parent's separate operating income, plus the intercompany loss
B the parent's separate operating income, plus the intercompany loss, plus the subsidiary's net income
C the parent's separate operating income, minus the intercompany loss
D the parent's separate operating income, minus the intercompany loss, plus the subsidiary's net income
40 Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I in the year of the downstream sale
II over the period of time the subsidiary uses the land
III in the year the subsidiary sells the land to an unrelated party
Trang 1541 Fred Corporation owns 75 percent of Winner Company's voting shares, acquired on March 21, 2005, at book value At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Winner Company The companies' permanent accounts on December 31, 2008, contained the following balances:
On January 1, 2004, Fred paid $150,000 for equipment with a 10-year expected total
economic life The equipment was depreciated on a straight-line basis with no residual value Winner purchased the equipment from Fred on December 31, 2006, for $140,000 Winner sold land it had purchased for $75,000 on February 18, 2004, to Fred for $60,000 on October
Trang 1642 New Company acquired 75 percent of Old Company's stock at underlying book value on January 1, 2008 At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Old Company Old Company reported shares outstanding of
$350,000 and retained earnings of $100,000 During 2008, Old Company reported net income
of $60,000 and paid dividends of $3,000 In 2009, Old Company reported net income of
$90,000 and paid dividends of $15,000 The following transactions occurred between New Company and Old Company in 2008 and 2009:
Old Co sold computer equipment to New Co for a $42,000 profit on December 26, 2008 The equipment had a five-year estimated economic life remaining at the time of intercompany transfer and is depreciated on a straight-line basis
New sold land costing $90,000 to Old Company on June 28, 2009, for $110,000
Required:
1) Give all eliminating entries needed to prepare a consolidation workpaper for 2009
assuming that New Co uses the fully adjusted equity method to account for its investment in Old Company
2) Give all eliminating entries needed to prepare a consolidation workpaper for 2009
assuming that New Co uses the cost method to account for its investment in Old Company
43 Peter Architectural Services owns 100 percent of Smith Manufacturing During the course
of 2008 Peter provides $100,000 of architectural services associated with Smith's new
manufacturing facility, which will open January 4, 2009, and has a 5 year useful life Explain the impact providing this service has on Peter Architectural Services' 2008 and 2009
consolidated financial statements
Trang 1744 PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percent owned subsidiary, on January 1, 2008 The cost of the land was $75,000, when it was
purchased in 2007 In 2010, Seven Star sells the land to Hot Properties Inc., an unrelated entity, for $120,000 How is the land reported in the consolidated financial statements for
A Blue's original cost
B Black's original cost
C Blue's original cost less Black's recorded gain
D Blue's original cost less 70 percent of Black's recorded gain
AACSB: Analytic
AICPA: Reporting
Trang 182 A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years The amount of income assigned to the
noncontrolling interest for the second year should include the noncontrolling interest's share
of gains:
A unrealized in the second year from upstream sales made in the second year
B realized in the second year from downstream sales made in both years
C realized in the second year from upstream sales made in both years
D both realized and unrealized from upstream sales made in the second year
A the parent's separate operating income, plus the subsidiary's net income
B the parent's separate operating income, plus the subsidiary's net income, minus the
AICPA: Decision Making
Sky Corporation owns 75 percent of Earth Company's stock On July 1, 2008, Sky sold a building to Earth for $33,000 Sky had purchased this building on January 1, 2006, for
$36,000 The building's original eight-year estimated total economic life remains unchanged Both companies use straight-line depreciation The equipment's residual value is considered negligible
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4 Based on the information provided, in the preparation of the 2008 consolidated financial statements, building will be _ in the eliminating entries
A debited for $750 in the eliminating entries
B credited for $750 in the eliminating entries
C credited for $1500 in the eliminating entries
D debited for $1500 in the eliminating entries
AACSB: Analytic
AICPA: Measurement
Trang 207 Based on the information provided, in the preparation of the 2009 consolidated income statement, depreciation expense will be:
A debited for $750 in the eliminating entries
B credited for $750 the eliminating entries
C credited for $1500 in the eliminating entries
D debited for $1500 in the eliminating entries
A debited for $6,750 in the eliminating entries
B credited for $6,750 in the eliminating entries
C credited for $7,500 in the eliminating entries
D debited for $7,500 in the eliminating entries
AACSB: Analytic
AICPA: Measurement
9 Phobos Company holds 80 percent of Deimos Company's voting shares During the
preparation of consolidated financial statements for 2009, the following eliminating entry was made:
Which of the following statements is correct?
A Phobos Company purchased land from Deimos Company during 2009
B Phobos Company purchased land from Deimos Company before January 1, 2009
C Deimos Company purchased land from Phobos Company during 2009
D Deimos Company purchased land from Phobos Company before January 1, 2009