Question 1

Pot Co. holds 90% of the common stock of Skillet Co. During 2013, 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 sales from Skillet to Pot. Intra-entity sales had the same markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as inventory at the end of 2013. What are consolidated sales and cost of goods sold for 2013?
A) $1,400,000 and $952,000.
B) $1,400,000 and $966,000.
C) $1,540,000 and $1,078,000.
D) $1,400,000 and $1,022,000.
E) $1,540,000 and $1,092,000.

Accepted Answer

Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 = $1,540,000 - Intra-Entity Sales $140,000 = $1,400,000Consolidated COGS = Parents COGS $840,000 + Sub's COGS $252,000 - Total Intra-Entity Transfer $140,000 + Deferred Unrealized Profit $14,000 = $966,000

Question 2

Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2012, Devin made frequent sales of inventory to Bauerly. There were unrealized gains of $40,000 in the beginning inventory and $25,000 of unrealized gains at the end of the year. Devin reported net income of $137,000 for 2012. Bauerly decided to use the equity method to account for the investment. What is the non-controlling interest's share of Devin's net income for 2012?
A) $41,100.
B) $33,600.
C) $21,600.
D) $45,600.
E) $36,600.

Accepted Answer

Sub's Net Income $137,000 + Deferred Realized Gains $40,000 - Deferred Unrealized gains $25,000 = $152,000 × Non-Controlling Interest 30% = $45,600 Non-Controlling Interest in Net Income

Question 3

Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2012, Clemente sold equipment to Snider for $125,000. The equipment had cost Clemente $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider.
At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2012?
A) $105,000.
B) $100,000.
C) $95,000.
D) $80,000.
E) $85,000.

Accepted Answer

Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is IgnoredEquipment is transferred at BV (Cost $140,000 - Acc. Deprec. $40,000) $100,000 - Deprec. For 2012 ($100,000/5) $20,000 = $80,000 BV at 12/31/2012

Question 4

Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2012, Clemente sold equipment to Snider for $125,000. The equipment had cost Clemente $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider.
At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2013?
A) $110,000.
B) $105,000.
C) $100,000.
D) $90,000.
E) $60,000.

Accepted Answer

Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is IgnoredEquipment is transferred at BV (Cost $140,000 - Acc. Deprec. $40,000) $100,000 - Deprec. For 2012 & 2013 ($100,000/5) $40,000 = $60,000 BV at 12/31/2013

Question 5

X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2013, Kent made several sales of inventory to X-Beams. The total selling price was $180,000 and the cost was $100,000. At the end of the year, 20% of the goods were still in X-Beams' inventory. Kent's reported net income was $300,000. What was the non-controlling interest in Kent's net income?
A) $90,000.
B) $85,200.
C) $54,000.
D) $94,800.
E) $86,640.

Accepted Answer

Sub's Net Income $300,000 - Deferred Unrealized Profit $16,000 = $284,000 × Non-Controlling Interest 30% = $85,200 Non-Controlling Interest in Net Income

Question 6

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?
A) Proportionately over a designated period of years.
B) When Wood Co. sells the land to a third party.
C) No gain can be recognized.
D) As Wood uses the land.
E) When Wood Co. begins using the land productively.

Accepted Answer

The gain on the sale of the land is realized when Wood Co. sells the land to a third party, as intra-group transactions are eliminated in consolidation until the asset is sold outside the group.

Question 7

On January 1, 2013, Payton Co. sold equipment to its subsidiary, Starker Corp., for $115,000. The equipment had cost $125,000, and the balance in accumulated depreciation was $45,000. The equipment had an estimated remaining useful life of eight years and $0 salvage value. Both companies use straight-line depreciation. On their separate 2013 income statements, Payton and Starker reported depreciation expense of $84,000 and $60,000, respectively. The amount of depreciation expense on the consolidated income statement for 2013 would have been
A) $144,000.
B) $148,375.
C) $109,000.
D) $134,000.
E) $139,625.

Accepted Answer

Sales Price $115,000 - BV $80,000 = $35,000 Gain on Sale/8yrs = $4,375 Annual Amortization of Unrealized Gain over Expected Useful Life of the AssetParent's Depreciation $84,000 + Sub's Depreciation $60,000 - Annual amortization $4,375 = $139,625

Question 8

Webb Co. acquired 100% of Rand Inc. on January 5, 2013. During 2013, Webb sold goods to Rand for $2,400,000 that cost Webb $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand. What was consolidated cost of goods sold?
A) $17,200,000.
B) $15,040,000.
C) $14,800,000.
D) $15,400,000.
E) $14,560,000.

Accepted Answer

Intra-entity gross profit ($2,400,000 - $1,800,000) $600,000 × Inventory remaining at year's end 40% = $240,000Consolidated COGS = Parents COGS $10,800,000 + Sub's COGS $6,400,000 - Total Intra-Entity Transfer $2,400,000 + Deferred Unrealized Profit $240,000 = $15,040,000

Question 9

Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2013, Kile sold merchandise to Prince for $140,000. At December 31, 2013, 50% of this merchandise remained in Prince's inventory. For 2013, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intra-entity profit in ending inventory at December 31, 2013 that should be eliminated in the consolidation process is
A) $28,000.
B) $56,000.
C) $22,400.
D) $21,000.
E) $42,000.

Accepted Answer

Intra-entity gross profit ($140,000 × .40) $56,000 × Inventory remaining at year's end (50%) = $28,000

Question 10

Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2012, include the following balances for land: for Chain--$416,000, and for Shannon-$256,000. On the original date of acquisition, the book value of Shannon's land was equal to its fair value. On April 4, 2013, Chain sold to Shannon a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2012. What is the consolidated balance for land on the 2013 balance sheet?
A) $672,000.
B) $690,000.
C) $755,000.
D) $737,000.
E) $654,000.

Accepted Answer

Parent's Land $416,000 + Sub's Land $256,000 = $672,000 - Any gain on the transfer is deferred until the parcel is sold outside the entity in the future.

Question 11

Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should
A) not recognize a gain on the sale of the land since it was made to a related party.
B) recognize a gain of $17,600.
C) defer recognition of the gain until Evana sells the land to a third party.
D) recognize a gain of $8,000.
E) recognize a gain of $22,000.

Accepted Answer

Sales Price $70,000 - BV $48,000 = Gain on Sale $22,000

Question 12

Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made several sales of inventory to Stendall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of a consolidating adjustment for intra-entity sales less the entire profit remaining in Stendall's ending inventory.
How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Stendall to Edgar?
A) Consolidated cost of goods sold would have remained $2,140,000.
B) Consolidated cost of goods sold would have been more than $2,140,000 because of the controlling interest in the subsidiary.
C) Consolidated cost of goods sold would have been less than $2,140,000 because of the non-controlling interest in the subsidiary.
D) Consolidated cost of goods sold would have been more than $2,140,000 because of the non-controlling interest in the subsidiary.
E) The effect on consolidated cost of goods sold cannot be predicted from the information provided.

Accepted Answer

$2,140,000 COGS unaffected by Consolidated Ending Inventory value

Question 13

Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2012, Thelma sold a parcel of land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income for 2012 was $119,000. What is the non-controlling interest's share of Thelma's net income?
A) $35,700.
B) $31,800.
C) $39,600.
D) $22,200.
E) $26,100.

Accepted Answer

Sales Price $45,000 - BV $32,000 = Gain on Sale $13,000Sub's Net Income $119,000 - Gain on Sale $13,000 = Adjusted Net Income $106,000 × Sub's Interest 30% = $31,800

Question 14

Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2013. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had $60,000 of the goods in its inventory at the end of the year. The amount of unrealized intra-entity profit that should be eliminated in the consolidation process at the end of 2013 is
A) $15,000.
B) $20,000.
C) $32,500.
D) $30,000.
E) $110,000.

Accepted Answer

Intra-entity gross profit ($390,000 - $260,000) $130,000 × Inventory remaining at year's end ($60,000/$390,000) = $20,000

Question 15

Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made several sales of inventory to Stendall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of a consolidating adjustment for intra-entity sales less the entire profit remaining in Stendall's ending inventory.
How would non-controlling interest in net income have differed if the transfers had been for the same amount and cost, but from Stendall to Edgar?
A) Non-controlling interest in net income would have decreased by $6,000.
B) Non-controlling interest in net income would have increased by $24,000.
C) Non-controlling interest in net income would have increased by $20,000.
D) Non-controlling interest in net income would have decreased by $18,000.
E) Non-controlling interest in net income would have decreased by $56,000.

Accepted Answer

$200,000 Revenue - $140,000 COGS = $60,000 Profit on Intra-Entity Sales × 25% still in Ending Inventory = $15,000 Adjustment to Net Income × 40% for Non-controlling Interest = $6,000 reduction in Net Income for the Non-Controlling Interest.

Question 16

Pot Co. holds 90% of the common stock of Skillet Co. During 2013, 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 Skillet's sales were Skillet's sales of merchandise to Pot for $140,000. There were no sales from Pot to Skillet. Intra-entity sales had the same markup as sales to outsiders. Pot still had 40% of the intra-entity sales as inventory at the end of 2013. What are consolidated sales and cost of goods sold for 2013?
A) $1,400,000 and $952,000.
B) $1,400,000 and $966,000.
C) $1,540,000 and $1,078,000.
D) $1,400,000 and $974,400.
E) $1,540,000 and $1,092,000.

Accepted Answer

Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 = $1,540,000 - Intra-Entity Sales $140,000 = $1,400,000Consolidated COGS = Parents COGS $840,000 + Sub's COGS $252,000 - Total Intra-Entity Transfer $140,000 + Deferred Unrealized Profit $22,400 = $974,400

Question 17

Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2013, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the goods at year-end. For 2013, cost of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for 2013?
A) $6,600,000.
B) $6,604,000.
C) $5,620,000.
D) $5,596,000.
E) $5,625,000.

Accepted Answer

Intra-entity gross profit ($1,000,000 - $800,000) $200,000 × Inventory remaining at year's end 10% = $20,000Consolidated COGS = Parents COGS $5,400,000 + Sub's COGS $1,200,000 - Total Intra-Entity Transfer $1,000,000 - Recognize Deferred Gross Profit from 2012 $24,000 + Deferred Unrealized Profit from 2013 $20,000 = $5,596,000

Question 18

Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of inventory to Gibson. The sales, which include a markup over cost of 25%, were $420,000 in 2012 and $500,000 in 2013. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2013. What was the non-controlling interest's share of Sparis' net income for 2013?
A) $85,680.
B) $90,600.
C) $90,720.
D) $91,680.
E) $91,800.

Accepted Answer

Sub's Net Income $912,000 + Deferred Realized Gains ($420,000/1.25 × 30% × 25%) $25,200 - Deferred Unrealized Gains ($500,000/1.25 × 30% × 25%) $30,000 = $907,200 × Non-Controlling Interest 10% = $90,720 Non-Controlling Interest in Net Income

Question 19

During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized?
A) When the goods are sold to a third party by Lord.
B) When Lord pays Von for the goods.
C) When Von sold the goods to Lord.
D) When the goods are used by Lord.
E) No gain can be recognized since the transaction was between related parties.

Accepted Answer

The $14,000 gain is realized when the goods are sold to a third party by Lord, as this is when the profit is recognized from the perspective of the combined entity.

Question 20

On January 1, 2013, Race Corp. acquired 80% of the voting common stock of Gallow Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000. Gallow still owned 15% of the goods at year-end. Gallow's reported net income was $204,000, and Race's net income was $806,000. Race decided to use the equity method to account for this investment. What was the non-controlling interest's share of consolidated net income?
A) $3,600.
B) $22,800.
C) $30,900.
D) $32,900.
E) $40,800.

Accepted Answer

Sub's Net Income $204,000 × .20 = $40,800

Quiz 5: Consolidated Financial Statements Intra-Entity Asset Transactions

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized?

Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should

During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized?