Deck 6: Intercompany Inventory and Land Profits

Question 1

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
Assume that Y Inc.reported an after-tax net income of $20,000 in 2009,what would be Y's adjusted net income for the year?

A)$20,000.
B)$19,800.
C)$20,200.
D)$19,840.

Answer 1

B

Question 2

Which of the following statements best describes the required accounting treatment with respect to income taxes on intercompany profits?

A)These taxes can be ignored since an increase in income tax expense for one company is offset by an equivalent reduction in Income Tax expense for the other.
B)They would be recognized as assets for the purchasing entity and liabilities for the selling entity.
C)They would be recognized as liabilities for the purchasing entity and assets for the selling entity.
D)They would be charged to retained earnings during the preparation of Financial Statements.

Answer 2

C

Question 3

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What effect (if any)would Y's unrealized profits on its sales to X have on the non-controlling interest?

A)There would be no effect.
B)There would be an increase to the non-controlling interest account in the amount of $30.
C)There would be a decrease to the non-controlling interest account in the amount of $40.
D)There would be a decrease to the non-controlling interest account in the amount of $30.

Answer 3

C

Question 4

If a parent company borrows money from its subsidiary,what effect (if any)will this have on the non-controlling interest?

A)This would have no effect on the non-controlling interest.
B)The subsidiary would book its pro-rata share of any interest revenue.
C)The non-controlling interest Balance would be reduced by the amount of the loan.
D)The subsidiary would record any interest revenue as an extraordinary gain.

Question 5

Intercompany profits on sales of inventory are only realized

A)once the seller receives payment for the sale.
B)once the inventory has been sold to outsiders.
C)when the inventory has been received by the purchaser.
D)when the inventory has been shipped to the purchaser.

Question 6

What amount of sales revenue would appear on Kho Inc's Consolidated Income Statement for the year ended December 31,2009?

A)$1,340,000.
B)$1,276,000.
C)$1,400,000.
D)$1,210,000.

Question 7

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What is the after-tax dollar value of Y's unrealized profits during the year on its sales to X?

A)$200.
B)$300.
C)$400.
D)$500.

Question 8

How would any management fees charged by a Parent Company to its Subsidiary be accounted for during the Consolidation process?

A)The Parent Company would only record its pro rata share of any management revenues.
B)The Parent Company's profit on the rendering of management services would be charged to retained earnings.
C)Both the Parent's management fees and the subsidiary's related expense would be eliminated when preparing Consolidated Financial Statements.
D)No special accounting treatment is required,since this would have no effect on Consolidated Net Income.

Question 9

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
Assuming that X Inc.used the equity method,what adjustment would have to be made to the investment in Y account to adjust for any unrealized profits on Y's sales to X?

A)No adjustment would be required.
B)The account would have to be reduced by $400.
C)The account would have to be reduced by $160.
D)The account would have to be reduced by $200.

Question 10

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What is the after-tax dollar value of Y's realized profits during the year on its sales to X?

A)$200
B)$300
C)$400
D)$500

Question 11

What would be the journal entry to record the dividends received by Kho Inc.during the year?

Question 12

Which of the following theories does NOT acknowledge the existence of a non-controlling interest in the Consolidated Financial Statements?

A)The Ownership Theory.
B)The Entity Theory.
C)The Proprietary Theory.
D)The Parent Theory.

Question 13

When are profits from intercompany land sales realized?

A)They are realized only when sold to outsiders.
B)They are realized once legal ownership of the land has been transferred.
C)They are realized when consideration has been received for the land.
D)They are realized when an agreement is signed with respect to ownership of the land.

Question 14

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What would be the journal entry to eliminate any unrealized profits from the Consolidated Financial Statements during the year?

Question 15

Under which of the following Theories is the elimination of ALL intercompany profits called for?

A)The Ownership Theory.
B)The Entity Theory.
C)The Proprietary Theory.
D)The Parent Theory.

Question 16

Under which of the following Consolidation Theories would the elimination of the Parent's share of any intercompany profits be required for the preparation of Consolidated Financial Statements?

A)The Ownership Theory.
B)The Entity Theory.
C)The Proprietary Theory.
D)The Parent Theory.

Question 17

Which of the following theories views non-controlling interest and the controlling shareholders as being two distinct shareholder groups?

A)The Ownership Theory.
B)The Entity Theory.
C)The Proprietary Theory.
D)The Parent Theory.

Question 18

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What is the after-tax dollar value of X's realized profits during the year on its sales to Y?

A)$2,000.
B)$400.
C)$200.
D)$500.

Question 19

The amount of goodwill arising from this business combination is

A)$ 186,667.
B)-$180,000.
C)$ 168,000.
D)$ 120,000.

Question 20

The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
What is the after-tax dollar value of X's unrealized profits during the year on its sales to Y?

A)$2,000.
B)$400.
C)$200.
D)$500.

Question 21

Excluding any goodwill impairment losses,what would be the amount of the acquisition differential amortization for 2009?

A)$2,700.
B)$3,000.
C)$4,000.
D)$2,000.

Question 22

What would be the non-controlling interest amount appearing on Kho's Consolidated Statement of Financial Position at the end of 2007?

A)$29,936.
B)$57,400.
C)$74,907.
D)$55,840.

Question 23

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the amount of the acquisition differential amortized during 2008?

A)$80,000
B)$82,000
C)$78,000
D)$120,000

Question 24

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-Consolidated Net Income for 2008 would be:

A)$15,000
B)$12,500
C)$53,200
D)$36,300

Question 25

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-Assuming that LEO uses the equity method to account for its investment in MARS,what would be the NET increase to the investment in MARS account during 2008?

A)$43,200
B)$12,000
C)($41,700)
D)($49,200)

Question 26

Ignoring taxes,what is the total amount of unrealized profits in inventory at the end of 2009?

A)Nil.
B)$8,000.
C)$6,000.
D)$7,800.

Question 27

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the change in the non-controlling interest account for 2009?

A)Non-controlling interest would increase by $45,000.
B)Non-controlling interest would increase by $48,000.
C)Non-controlling interest would decrease by $16,800.
D)Non-controlling interest would increase by $14,200.

Question 28

What would be the amount of other revenue appearing on Kho Inc's Consolidated Income Statement for the Year ended December 31,2009?

A)$460,000.
B)$444,000.
C)$410,000.
D)$415,000.

Question 29

What effect (if any)would the unrealized profits in beginning inventory have on income tax expense for 2009?

A)They would cause a $1,240 reduction in income tax expense.
B)They would cause a $1,200 reduction in income tax expense.
C)They would cause a $1,240 increase in income tax expense.
D)They would cause a $1,200 increase in income tax expense.

Question 30

What would be the non-controlling interest amount appearing on Kho's Consolidated Statement of Financial Position on the date of acquisition?

A)$66,667.
B)$30,000.
C)$29,936.
D)$120,000.

Question 31

What effect (if any)would the unrealized profits in ending inventory have on income tax expense for 2009?

A)They would cause a $1,600 reduction in income tax expense.
B)They would cause a $1,200 reduction in income tax expense.
C)They would cause a $1,600 increase in income tax expense.
D)They would cause a $1,200 increase in income tax expense.

Question 32

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-Consolidated Net Income for 2009 would be:

A)$69,150
B)$57,850
C)$58,000
D)$56,000

Question 33

Where would the amortization of the acquisition differential be reflected on Kho's Consolidated Income Statement?

A)It would be reflected through non-controlling interest in earnings.
B)It would be reflected through other expenses.
C)It would be reflected through cost of sales.
D)It would be reflected as a reduction of sales.

Question 34

Ignoring taxes,what is the total amount of unrealized profits in inventory at the start of 2009?

A)Nil.
B)$5,000.
C)$6,000.
D)$6,200.

Question 35

What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for bonds payable?

A)$234,400.
B)$236,000.
C)$240,000.
D)$216,000.

Question 36

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the amount of the acquisition differential amortized during 2009?

A)$2,000
B)$82,000
C)$78,000
D)$40,000

Question 37

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the change in the non-controlling interest account for 2008?

A)Non-controlling interest would increase by $18,000.
B)Non-controlling interest would increase by $26,000.
C)Non-controlling interest would decrease by $18,000.
D)Non-controlling interest would increase by $27,800.

Question 38

Ignoring taxes,what is the total amount of pre-tax profit from 2008 sales that was realized during 2008?

A)Nil.
B)$5,000.
C)$6,000.
D)$6,200.

Question 39

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-Assuming once again that LEO uses the equity method to account for its investment in MARS,what would be the NET increase to the investment in MARS account during 2009?

A)$20,000
B)$17,550
C)$16,000
D)$16,800

Question 40

What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for trademarks?

A)$200,000.
B)$245,000.
C)$240,000.
D)$236,000.

Question 41

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the balance in the non-controlling interest account on the date of acquisition?

A)$266,667.
B)$397,000.
C)$400,000.
D)$403,000.

Question 42

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the balance in the investment in MARS account at December 31,2009?

A)$348,000.
B)$330,000.
C)$375,850.
D)$400,000.

Question 43

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Calculate Consolidated Retained Earnings as at December 31,2009.

Question 44

Prepare a schedule of realized and unrealized profits for the fiscal year ended June 30,2010 for both companies.Show your figures before and after tax.

Question 45

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Calculate the non-controlling interest (Balance Sheet)as at December 31,2009.

Question 46

The following information pertains to questions
P Inc.owns 70% of Q Inc.During 2006,P Inc sold inventory to Q for $20,000.Half of this inventory remained in Q's warehouse at December 31,2002 year end.On January 1,2002,Q Inc had inventory in its warehouse which was purchased from P for $5,000.This inventory was sold to an outside party during 2006.Also during 2006,Q Inc sold inventory to P Inc.for $10,000.50% of this inventory remained in P's warehouse at year end.Both companies are subject to a tax rate of 25%.The gross profit percentage on sales is 30% for both companies.P Inc.uses the cost method to account for its Investment in Q Inc.The inventories of both companies as at December 31,2006 was all sold to outsiders during 2007.There were no intercompany transactions during 2007.
Prepare a schedule showing the realized and unrealized profits for Q Inc.for 2006 and 2007.Your schedule should include both pre-tax and after-tax amounts.

Question 47

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-What would be the balance in the investment in MARS account at December 31,2008?

A)$318,000.
B)$330,000.
C)$358,300.
D)$400,000.

Question 48

Calculate the non-controlling interest (Balance Sheet)as at June 30,2010.

Question 49

The following information pertains to questions
P Inc.owns 70% of Q Inc.During 2006,P Inc sold inventory to Q for $20,000.Half of this inventory remained in Q's warehouse at December 31,2002 year end.On January 1,2002,Q Inc had inventory in its warehouse which was purchased from P for $5,000.This inventory was sold to an outside party during 2006.Also during 2006,Q Inc sold inventory to P Inc.for $10,000.50% of this inventory remained in P's warehouse at year end.Both companies are subject to a tax rate of 25%.The gross profit percentage on sales is 30% for both companies.P Inc.uses the cost method to account for its Investment in Q Inc.The inventories of both companies as at December 31,2006 was all sold to outsiders during 2007.There were no intercompany transactions during 2007.
Prepare a schedule showing the realized and unrealized profits for P Inc.for 2006 and 2007.Your schedule should include both pre-tax and after-tax amounts.

Question 50

The following information pertains to questions
P Inc.owns 70% of Q Inc.During 2006,P Inc sold inventory to Q for $20,000.Half of this inventory remained in Q's warehouse at December 31,2002 year end.On January 1,2002,Q Inc had inventory in its warehouse which was purchased from P for $5,000.This inventory was sold to an outside party during 2006.Also during 2006,Q Inc sold inventory to P Inc.for $10,000.50% of this inventory remained in P's warehouse at year end.Both companies are subject to a tax rate of 25%.The gross profit percentage on sales is 30% for both companies.P Inc.uses the cost method to account for its Investment in Q Inc.The inventories of both companies as at December 31,2006 was all sold to outsiders during 2007.There were no intercompany transactions during 2007.
In your own words,explain what effect (if any)these intercompany transactions would have on non-controlling interest.

Question 51

Assuming that YIN Inc uses the equity method,compute the balance in its investment in YANG account at June 30,2010 and prepare journal entries.

Question 52

Compute YIN's Goodwill at the date of acquisition.

Question 53

Calculate Consolidated Retained Earnings as at June 30,2010.

Question 54

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Compute MAX's Goodwill at the Date of Acquisition.

Question 55

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
$\bullet$ MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
$\bullet$ LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
$\bullet$ LEO's net income was $75,000.
The following took place during 2009:
$\bullet$ MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
$\bullet$ MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
$\bullet$ LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.

-The amount of goodwill arising from this combination would be

A)$120,000.
B)$130,000.
C)$296,667.
D)$200,000.

Question 56

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Prepare a schedule of Realized and Unrealized profits for 2009 for both companies.Show your figures before and after tax.

Question 57

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Compute MAX's Consolidated Net Income for 2009.

Question 58

Prepare YIN's Consolidated Income Statement for the Year ended June 30,2010

Question 59

The following information pertains to questions
MAX Inc.purchased 80% of the voting shares of MIN Inc for $750,000 on January 1,2007.On that date,MAX's common stock and retained earnings were valued at $300,000 and $150,000 respectively.Unless otherwise stated,assume that MAX uses the cost method to account for its investment in MIN Inc.
MIN's fair values approximated its carrying values with the following exceptions:
MIN's trademark had a fair value which was $80,000 higher than its carrying value.
MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.
The trademark had a useful life of exactly twenty years remaining from the date of acquisition.The bonds payable mature on January 1,2020.Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended December 31,2009 are shown below: Other Information:
A goodwill impairment test conducted during August of 2009 revealed that the Min's goodwill amount on the date of acquisition was overstated by $5,000.
During 2008,Max sold $60,000 worth of Inventory to Min,80% of which was sold to outsiders during the year.During 2009,Max sold inventory to Min for $80,000.75% of this inventory was resold by Min to outside parties.
During 2008,Min sold $40,000 worth of Inventory to Max,80% of which was sold to outsiders during the year.During 2009,Min sold inventory to Max for $50,000.80% of this inventory was resold by Max to outside parties.
All intercompany sales as well as sales to outsiders are priced 25% above cost.The effective tax rate for both companies is 50%.
Prepare MAX's Consolidated Statement of Financial Position as at December 31,2009.