Deck 10: Intercompany Fixed Asset Transfers & Bond Holdings

Question 1

_____ On 1/3/06, Pylux sold equipment costing $100,000 to its 100%-owned subsidiary, Sylux, for $80,000. At the time of the sale, the equipment had been 50% depreciated (using the straight-line method and an assigned life of 10 years). Sylux continued depreciating the equipment by using the straight-line method over a remaining life of 5 years.
What are the cost and accumulated depreciation, respectively, of this equipment in the 12/31/06 consolidated balance sheet?

A) $80,000 and $16,000.
B) $80,000 and $56,000.
C) $80,000 and $60,000.
D) $100,000 and $16,000.
E) $100,000 and $60,000.

Answer 1

$100,000 and $60,000.

Question 2

_____ On 1/3/06, Pylux sold equipment costing $100,000 to its 100%-owned subsidiary, Sylux, for $80,000. At the time of the sale, the equipment had been 50% depreciated (using the straight-line method and an assigned life of 10 years). Sylux continued depreciating the equipment by using the straight-line method over a remaining life of 5 years. What is the amount of the intercompany profit or loss that must be deferred at 12/31/06?

A) $6,000
B) $14,000
C) $16,000
D) $24,000
E) $30,000

Answer 2

$24,000

Question 3

_____ On 1/3/06, Pylux sold equipment costing $100,000 to its 100%-owned subsidiary, Sylux, for $80,000. At the time of the sale, the equipment had been 50% depreciated (using the straight-line method and an assigned life of 10 years). Sylux continued depreciating the equipment by using the straight-line method over a remaining life of 5 years. What is the amount of the adjustment to Depreciation Expense in preparing the consolidation worksheet at 12/31/06?

A) $-0-
B) $3,000
C) $4,000
D) $5,000
E) $6,000

Answer 3

$6,000

Question 4

_____ On 1/2/06, Palex sold equipment costing $100,000 to its 100%-owned subsidiary, Salex, for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Salex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What are the cost and accumulated depreciation, respectively, of this equipment in the 12/31/06 consolidated balance sheet?

A) $100,000 and $68,000.
B) $100,000 and $70,000.
C) $100,000 and $15,000.
D) $100,000 and $10,000.
E) $75,000 and $15,000.

Question 5

_____ On 1/2/06, Palex sold equipment costing $100,000 to its 100%-owned subsidiary, Salex, for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Salex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What is the amount of the intercompany profit or loss that must be deferred at 12/31/06?

A) $-0-
B) $7,000
C) $8,750
D) $26,250
E) None of the above.

Question 6

_____ On 1/2/06, Palex sold equipment costing $100,000 to its 100%-owned subsidiary, Salex, for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Salex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What is the amount of the adjustment to Depreciation Expense in preparing the consolidation worksheet at 12/31/06?

A) A debit of $7,000.
B) A credit of $7,000.
C) A debit of $8,750.
D) A credit of $8,750.
E) None of the above.

Question 7

_____ On 1/2/06, Poxey sold equipment costing $100,000 to Soxey (a 100%-owned subsidiary) for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Soxey continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
What are the cost and accumulated depreciation, respectively, of this equipment in the 12/31/07-not 12/31/06-consolidated balance sheet?

A) $48,000 and $16,000.
B) $48,000 and $20,000.
C) $100,000 and $16,000.
D) $100,000 and $56,000.
E) None of the above.

Question 8

_____ On 1/2/06, Poxey sold equipment costing $100,000 to Soxey (a 100%-owned subsidiary) for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Soxey continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
What is the amount of the intercompany profit or loss that must be deferred at 12/31/07-not 12/31/06?

A) $12,000
B) $10,000
C) $8,000
D) $4,000
E) None of the above.

Question 9

_____ On 1/2/06, Poxey sold equipment costing $100,000 to Soxey (a 100%-owned subsidiary) for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Soxey continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
What is the amount of the adjustment to Depreciation Expense in preparing the consolidation worksheet at 12/31/07?

A) A debit of $2,000.
B) A credit of $2,000.
C) A debit of $8,000.
D) A credit of $8,000.
E) None of the above.

Question 10

_____ On 1/3/06, Sayex (an 80%-owned subsidiary of Payex) sold equipment costing $100,000 to Payex for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Payex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What are the cost and accumulated depreciation, respectively, of this equipment in the 12/31/07-not 12/31/06-consolidated balance sheet?

A) $100,000 and $20,000.
B) $100,000 and $18,000.
C) $100,000 and $88,000.
D) $100,000 and $100,000.
E) None of the above.

Question 11

_____ On 1/3/06, Sayex (an 80%-owned subsidiary of Payex) sold equipment costing $100,000 to Payex for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Payex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What is the amount of the intercompany profit or loss that must be deferred at 12/31/07-not 12/31/06?

A) $25,000
B) $20,000
C) $15,000
D) $12,000
E) $8,000

Question 12

_____ On 1/3/06, Sayex (an 80%-owned subsidiary of Payex) sold equipment costing $100,000 to Payex for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Payex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What is the adjustment to Depreciation Expense in preparing the consolidation worksheet at 12/31/07?

A) A debit of $5,000.
B) A credit of $5,000.
C) A debit of $12,500.
D) A credit of $12,500.
E) None of the above.

Question 13

_____ In intercompany bond holdings in which the issuing company has a discount and the acquiring company has a premium, the following is reported in the consolidated income statement in the year of the bond acquisition:

A) Always a gain.
B) Always a loss.
C) A gain only if the applicable share of the unamortized discount exceeds the premium.
D) A loss only if the applicable share of the unamortized discount exceeds the premium.
E) None of the above.

Question 14

_____ In intercompany bond holdings in which the issuing company has a premium and the acquiring company has a premium, the following is reported in the consolidated income statement in the year of the bond acquisition:

A) Always a gain.
B) Always a loss.
C) A gain only if the applicable share of the unamortized premium exceeds the acquiring company's premium.
D) A loss only if the applicable share of the unamortized premium exceeds the acquiring company's premium.
E) None of the above.

Question 15

_____ In intercompany bond holdings in which the issuing company has a discount and the acquiring company has a discount, the following is reported in the consolidated income statement in the year of the bond acquisition:

A) Always a gain.
B) Always a loss.
C) A gain only if the applicable share of the unamortized discount exceeds the acquiring company's discount.
D) A loss only if the applicable share of the unamortized discount exceeds the acquiring company's discount.
E) None of the above.

Question 16

_____ In intercompany bond holdings in which the issuing company has a premium and the acquiring company has a discount, the following is reported in the consolidated income statement in the year of the bond acquisition:

A) Always a gain.
B) Always a loss.
C) A gain only if the applicable share of the unamortized premium exceeds the acquiring company's discount.
D) A loss only if the applicable share of the unamortized premium exceeds the acquiring company's discount.
E) None of the above.

Question 17

_____ The gain or loss on the deemed extinguishment of a subsidiary's bonds is to be reported in the consolidated financial statements as

A) An adjustment to intercompany interest income and/or intercompany interest expense.
B) An extraordinary item, regardless of materiality.
C) An extraordinary item, if material.
D) A nonextraordinary item.
E) None of the above.

Question 18

_____ A parent company acquired in the open market 20% of its 100%-owned subsidiary's outstanding 7% bonds for $202,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $1,030,000 on the acquisition date. The gain or loss to be reported in the consolidated income statement in the bond acquisition year is

A) A gain of $4,000.
B) A loss of $4,000.
C) A gain of $8,000.
D) A loss of $8,000.
E) A gain of $6,000. f. None of the above.

Question 19

_____ A 100%-owned subsidiary acquired in the open market 40% of its parent's outstanding 8% bonds for $395,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $960,000 on the acquisition date. The gain or loss to be reported in the consolidated income statement in the bond acquisition year is

A) A gain of $11,000.
B) A loss of $11,000.
C) A gain of $21,000.
D) A loss of $21,000.
E) None of the above.

Question 20

(Module 1) On 1/3/06, Pancoe sold equipment costing $100,000 to its 100%-owned subsidiary, Sancoe, for $80,000. At the time of the sale, the equipment had been 50% depreciated (using the straight-line method and an assigned life of 10 years). Sancoe continued depreciating the equipment by using the straight-line method over a remaining life of 5 years. Sancoe reported net income of $300,000 for 2006.
Required:
a. Prepare the general ledger entry required at 12/31/06 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 21

(Module 2) On 1/3/06, Pancoe sold equipment costing $100,000 to its 100%-owned subsidiary, Sancoe, for $80,000. At the time of the sale, the equipment had been 50% depreciated (using the straight-line method and an assigned life of 10 years). Sancoe continued depreciating the equipment by using the straight-line method over a remaining life of 5 years.
Required:
Prepare the consolidation entry or entries at 12/31/06.

Question 22

(Module 1) On 1/2/06, Penex sold equipment costing $100,000 to its 100%-owned subsidiary, Senex for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Senex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years. Senex reported $500,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at 12/31/06 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 23

(Module 2) On 1/2/06, Penex sold equipment costing $100,000 to its 100%-owned subsidiary, Senex, for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Senex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
Required:
Prepare the consolidation entry or entries required at 12/31/06 under the partial equity method.

Question 24

(Module 1) On 1/2/06, Pidox sold equipment costing $100,000 to its 100%-owned subsidiary, Sidox, for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Sidox continued depreciating the equipment by using the straight-line method over a remaining life of 6 years. Sidox reported $600,000 of net income for 2007.
Required:
a. Prepare the general ledger entry required at 12/31/07-not 12/31/06-under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/07-not 12/31/06.

Question 25

(Module 2) On 1/2/06, Pidox sold equipment costing $100,000 to its 100%-owned subsidiary, Sidox, for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Sidox continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
Required:
Prepare the consolidation entry or entries required at 12/31/07-not 12/31/06-under the partial equity method.
Fixed Asset Transfers-Upstream

Question 26

(Module 1) On 1/3/06, Soytax (an 80%-owned subsidiary of Poytax) sold equipment costing $100,000 to Poytax for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Poytax continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years. Soytax reported $500,000 of net income for 2007.
Required:
a. Prepare the general ledger entry or entries required at 12/31/07-not 12/31/06-under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/07-not 12/31/06.

Question 27

(Module 2) On 1/3/06, Soytax (an 80%-owned subsidiary of Poytax) sold equipment costing $100,000 to Poytax for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Poytax continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
Required:
Prepare the consolidation entry or entries required at 12/31/07-not 12/31/06-under the partial equity method.
Bond Holdings-100% Owned Subsidiaries

Question 28

(Module 1) On 1/1/06, Parco purchased in the open market 20% of its 100%-owned subsidiary's outstanding 8% bonds for $190,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $1,040,000 on 1/1/06. The maturity date of the bonds is 12/31/10. The subsidiary, Sarco, reported $300,000 of net income for 2006.
Required:
a. Prepare the general ledger entry required at 12/31/06 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 29

(Module 2) On 1/1/06, Pozox purchased in the open market 20% of its 100%-owned subsidiary's outanding 8% bonds for $190,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $1,040,000 on 1/1/06. The maturity date of the bonds is 12/31/10.
Required:
Prepare the consolidation entry or entries required under the partial equity method at
a. 1/1/06
b. 12/31/06.

Question 30

(Module 1) On 1/1/06, Sodak, a 60%-owned subsidiary of Podak, purchased in the open market 20% of Podak's outstanding 9% bonds for $184,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $980,000 on 1/1/06. The maturity date of the bonds is 12/31/09. Sodak reported $500,000 of net income for 2006.
Required:
a. Prepare the general ledger entry or entries required at 12/31/06 under the complete equity method.
b. Prepare the consolidation entry or entries required at 12/31/06.

Question 31

(Module 2) On 1/1/06, Sycol, a 60%-owned subsidiary of Pycol, purchased in the open market 20% of Pycol's outstanding 9% bonds for $184,000. The outstanding bonds have a face value of $1,000,000 and a carrying value of $980,000 on 1/1/06. The maturity date of the bonds is 12/31/09.
Required:
Prepare the consolidation entry or entries required under the partial equity method at
a. 1/1/06
b. 12/31/06.