Question 1

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  Compute the equity in earnings of Anderson reported on Philbin's books for 2020.
A) $63,000.
B) $62,730.
C) $63,270.
D) $70,000.
E) $62,700.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 2

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  Compute the equity in earnings of Anderson reported on Philbin's books for 2021.
A) $76,500.
B) $77,130.
C) $75,870.
D) $75,600.
E) $75,800.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 3

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset?
A) Net income attributable to the noncontrolling interest is never affected by a gain on the transfer.
B) Net income attributable to the noncontrolling interest is always affected by a gain on the transfer.
C) Net income attributable to the noncontrolling interest is affected by a downstream gain only.
D) Net income attributable to the noncontrolling interest is affected only when the transfer is upstream.
E) Net income attributable to the noncontrolling interest is increased by an upstream gain in the year of transfer.

Accepted Answer

Net income attributable to the noncontrolling interest is affected only when the transfer is upstream because the gain or loss impacts the subsidiary's financials, which in turn affects the noncontrolling interest.

Question 4

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to cost of goods sold for the 2022 consolidation worksheet with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2022 intra-entity transfer of merchandise?
A) $600.
B) $750.
C) $3,760.
D) $3,000.
E) $675.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 5

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2021 consolidation worksheet entry with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2020 intra-entity transfer of merchandise?
A) $240
B) $300.
C) $2,000.
D) $1,600.
E) $270.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 6

An intra-entity transfer took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year after the year of transfer?
A) A worksheet entry is made with a debit to retained earnings for an upstream transfer.
B) A worksheet entry is made with a credit to retained earnings for an upstream transfer.
C) A worksheet entry is made with a debit to retained earnings for a downstream transfer.
D) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer.
E) No worksheet entry is necessary.

Accepted Answer

The answer of An intra-entity transfer took place whereby the...

Question 7

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to cost of goods sold for the 2021 consolidation worksheet with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2021 transfer of merchandise?
A) $1,000.
B) $800.
C) $3,000.
D) $2,400.
E) $900.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 8

An intra-entity transfer of a depreciable asset took place whereby the transfer price exceeded the book value of the asset. Which statement is true with respect to the year following the year in which the transfer occurred?
A) A worksheet entry is made with a debit to gain for a downstream transfer.
B) A worksheet entry is made with a debit to gain for an upstream transfer.
C) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method.
D) A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment.
E) No worksheet entry is necessary.

Accepted Answer

The answer of An intra-entity transfer of a depreciable asset...

Question 9

An intra-entity transfer took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year subsequent to the year of transfer?
A) A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer.
B) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer.
C) A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method.
D) A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment.
E) No worksheet entry is necessary.

Accepted Answer

A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method.

Question 10

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.Compute consolidated cost of goods sold.
A) $7,500,000.
B) $7,600,000.
C) $7,615,000.
D) $7,604,500.
E) $7,660,000.

Accepted Answer

The answer of Patti Company owns 80% of the common...

Question 11

Parent sold land to its subsidiary resulting in a gain in 2019, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2022. Which of the following statements is true?
A) A gain will be recognized in the consolidated income statement in 2019.
B) A gain will be recognized in the consolidated income statement in 2022.
C) No gain will be recognized in the 2022 consolidated income statement.
D) Only the parent company will recognize a gain in 2022.
E) The subsidiary will recognize a gain in 2019.

Accepted Answer

The gain from the sale of land to an unrelated third party will be recognized in the consolidated income statement in 2022 when the subsidiary sells the land, as this is when the gain is realized with an external party.

Question 12

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.Compute consolidated sales.
A) $10,000,000.
B) $10,126,000.
C) $10,140,000.
D) $10,200,000.
E) $10,260,000.

Accepted Answer

Patti's sales are $10,000,000. Shannon's sales are $200,000. Patti sold $60,000 of merchandise to Shannon, of which Shannon still has 30% in inventory at the end of the year. This means that Patti's sales to Shannon were actually $60,000 * (1 - 0.3) = $42,000. Therefore, consolidated sales are $10,000,000 + $200,000 + $42,000 = $10,140,000.

Question 13

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales.
A) $10,000,000.
B) $10,126,000.
C) $10,140,000.
D) $10,200,000.
E) $10,260,000.

Accepted Answer

The answer of Patti Company owns 80% of the common...

Question 14

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  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 2021.
A) $8,500.
B) $8,570.
C) $8,430.
D) $8,400.
E) $7,580.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 15

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  Compute the equity in earnings of Anderson reported on Philbin's books for 2022.
A) $84,600.
B) $84,375.
C) $83,925.
D) $84,825.
E) $84,850.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 16

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2022 consolidation worksheet entry with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2021 intra-entity transfer of merchandise?
A) $3,000.
B) $2,400.
C) $1,000.
D) $800.
E) $900.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 17

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2020 consolidation worksheet entry with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2020 intra-entity transfer of merchandise?
A) $0.
B) $1,600.
C) $300.
D) $240.
E) $270.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 18

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  For consolidation purposes, what amount would be debited to cost of goods sold for the 2020 consolidation worksheet with regard to unrecognized intra-entity gross profit remaining in ending inventory with respect to the transfer of merchandise?
A) $300.
B) $240.
C) $2,000.
D) $1,600.
E) $270.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 19

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  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 2020.
A) $6,970.
B) $7,000.
C) $7,030.
D) $6,270.
E) $6,230.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Question 20

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, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.  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 2022.
A) $9,400.
B) $9,375.
C) $9,425.
D) $9,325.
E) $8,485.

Accepted Answer

The answer of Anderson Company, a 90% owned subsidiary of...

Quiz 5: Consolidated Financial Statements Intra-Entity Asset Transactions

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset?

An intra-entity transfer took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year after the year of transfer?

An intra-entity transfer of a depreciable asset took place whereby the transfer price exceeded the book value of the asset. Which statement is true with respect to the year following the year in which the transfer occurred?

An intra-entity transfer took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year subsequent to the year of transfer?

Parent sold land to its subsidiary resulting in a gain in 2019, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2022. Which of the following statements is true?