Deck 4: Intercompany Transactions: Merchandise, Plant Assets, and Notes

Question 1

Williard Corporation regularly sells inventory items to its subsidiary, Petty, Inc.If unrealized profits in Petty's 2016 year-end inventory exceed the unrealized profits in its 2017 year-end inventory, 2017 combined

A)​cost of sales will be less than consolidated cost of sales in 2017.
B)​gross profit will be greater than consolidated gross profit in 2017.
C)​sales will be less than consolidated sales in 2017.
D)​cost of sales will be greater than consolidated cost of sales in 2017.

Answer 1

D

Question 2

This year, Rose Company acquired all of the common stock of Hayley Company.At the end of the current year, balances of selected accounts and other information for each of the companies were as follows: At the end of the year, 50% of the inventory that Rose sold to Hayley remained in Hayley's inventory, and $30,000 of the amount of the sales was unpaid.Rose still owes half of the amount of its purchases to Hayley, but had sold all of the inventory it had acquired from Hayley by the end of the year.
$$\begin{array} { l r r } & { \text { Rose } } & { \text { Hayley } } \\\text { Sales } & \$ 2,582,000 & \$ 1,734,000 \\\text { Accounts receivable } & 580,000 & 235,000 \\\\\text { Sales to Hayley during year } & 80,000 & \\\text { Sales to Rose during year } & & 20,000 \\\text { Gross profit on all sales } & 25 \% & 30 \%\end{array}$$
What is the amount of consolidated sales at the end of the year?

A)$4,216,000
B)$4,316,000
C)$4,276,000
D)$4,246,000

Answer 2

$4,216,000

Question 3

Emron Company owns a 100% interest in the common stock of the Dietz Company.On January 1, 2017, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period.The asset was sold at a $5,000 profit.In the consolidated statements, this profit will

A)​not be recorded.
B)​be recognized over 5 years.
C)​be recognized in the year of sale.
D)​be recognized when the asset is resold to outside parties at the end of its period of use.

Answer 3

B

Question 4

Perry, Inc.owns a 90% interest in Brown Corp.During 2016, Brown sold $100,000 in merchandise to Perry at a 30% gross profit.Ten percent of the goods are unsold by Perry at year end.The non-controlling interest will receive what gross profit as a result of these sales?​

A)​$0
B)​$2,700
C)​$3,000
D)​$27,000

Question 5

The sale of inventory items by a parent company to an affiliated company​

A)​enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
B)​affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
C)​does not result in consolidated income until the merchandise is sold to outside entities.
D)​does not require a working paper adjustment if the merchandise was transferred at cost.

Question 6

On January 1, 2016 Bullock, Inc.sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain.The land is sold by Humphrey to an outside party in 2018.What is the effect of the intercompany sale of land on 2016 consolidated net income?

A)​Consolidated net income will be the same as it would have been had the sale not occurred.
B)​Consolidated net income will be $20,000 less than it would have been had the sale not occurred.
C)​Consolidated net income will be $16,000 less than it would have been had the sale not occurred.
D)​Consolidated net income will be $20,000 greater than it would have been had the sale not occurred.

Question 7

Porch Company owns a 90% interest in the Screen Company.Porch sold Screen a milling machine on January 1, 2016, for $50,000 when the book value of the machine on Porch's books was $40,000.Porch financed the sale with Screen signing a 3-year, 8% interest, and note for the entire $50,000.The machine will be used for 10 years and depreciated using the straight-line method.The following amounts related to this transaction were located on the company's trial balances:
$\begin{array}{llr} \text { Interest Revenue} &\$4,000\\ \text { Interest Expense } &\$4,000\\ \text { Depreciation Expense } &\$5,000\end{array}$

Based upon the information related to this transaction what will be the amounts eliminated in preparing the 2016 consolidated financial statements
$\quad$ Interest Revenue $\quad$ Interest Expense $\quad$ Depreciation Expense

A) $\quad$ 4,000 $\quad$$\quad$$\quad$$\quad$$\quad$ 4,000 $\quad$$\quad$$\quad$$\quad$$\quad$ 5,000
B) $\quad$ 4,000 $\quad$$\quad$$\quad$$\quad$$\quad$ 4,000 $\quad$$\quad$$\quad$$\quad$$\quad$ 1,000
C) $\quad$ 3,600 $\quad$$\quad$$\quad$$\quad$$\quad$ 3,600 $\quad$$\quad$$\quad$$\quad$$\quad$ 900
D) $\quad$ 3,600 $\quad$$\quad$$\quad$$\quad$$\quad$ 3,600 $\quad$$\quad$$\quad$$\quad$$\quad$ 4,500

Question 8

Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years ago.On January 1, 2017, Pennie sold land with a book value of $60,000 to Stroud for $90,000.Stroud resold the land to an unrelated party for $100,000 on September 26, 2018.The gain from sale of land that will appear in the consolidated income statements for 2017 and 2018, respectively, is ____.

A)​$0 and $10,000
B)​$0 and $40,000
C)​$30,000 and $10,000
D)​$30,000 and $40,000

Question 9

Diller owns 80% of Lake Company common stock.During October 2016, Lake sold merchandise to Diller for $300,000.On December 31, 2016, one-half of this merchandise remained in Diller's inventory.For 2016, gross profit percentages were 30% for Diller and 40% for Lake.The amount of unrealized profit in the ending inventory on December 31, 2016 that should be eliminated in consolidation is ____.

A)​$80,000
B)​$60,000
C)​$32,000
D)​$30,000

Question 10

Which of the following should appear in consolidated financial statements?

A)​All intercompany transactions properly recorded on each affiliate's books.
B)​Transactions between the consolidated company and outside parties.
C)​Transactions not accounted for by the simple equity method.
D)​Lease transactions between a parent and subsidiary.

Question 11

Pease Corporation owns 100% of Sade Corporation common stock.On January 2, 2016, Pease sold machinery with a carrying amount of $30,000 to Sade for $50,000.Sade is depreciating the acquired machinery over a 5-year life using the straight-line method.The related net adjustments to compute the 2016 and 2017 consolidated income before income tax would be an increase (decrease) of ?
$\quad$$\quad$ 2016 $\quad$ 2017

A)?$(16,000) $\quad$ $4,000
B)?$(16,000) $\quad$ $0
C)?$(20,000) $\quad$ $4,000
D)?$(20,000) $\quad$ $0

Question 12

This year, Rose Company acquired all of the common stock of Hayley Company.At the end of the current year, balances of selected accounts and other information for each of the companies were as follows: At the end of the year, 50% of the inventory that Rose sold to Hayley remained in Hayley's inventory, and $30,000 of the amount of the sales was unpaid.Rose still owes half of the amount of its purchases to Hayley, but had sold all of the inventory it had acquired from Hayley by the end of the year.
$$\begin{array} { l r r } & { \text { Rose } } & { \text { Hayley } } \\\text { Sales } & \$ 2,582,000 & \$ 1,734,000 \\\text { Accounts receivable } & 580,000 & 235,000 \\\\\text { Sales to Hayley during year } & 80,000 & \\\text { Sales to Rose during year } & & 20,000 \\\text { Gross profit on all sales } & 25 \% & 30 \%\end{array}$$
What is the amount of consolidated cost of goods sold at the end of the year?

A)$3,107,900
B)$3,150,300
C)$3,040,300
D)$3,050,300

Question 13

Schiff Company owns 100% of the outstanding common stock of the Viel Company.During 2016, Schiff sold merchandise to Viel that Viel, in turn, sold to unrelated firms.There were no such goods in Viel's ending inventory.However, some of the intercompany purchases from Schiff had not yet been paid.Which of the following amounts will be incorrect in the consolidated statements if no adjustments are made?​

A)​inventory, accounts payable, net income
B)​inventory, sales, cost of goods sold, accounts receivable
C)​sales, cost of goods sold, accounts receivable, accounts payable.
D)​accounts receivable, accounts payable

Question 14

This year, Rose Company acquired all of the common stock of Hayley Company.At the end of the current year, balances of selected accounts and other information for each of the companies were as follows: At the end of the year, 50% of the inventory that Rose sold to Hayley remained in Hayley's inventory, and $30,000 of the amount of the sales was unpaid.Rose still owes half of the amount of its purchases to Hayley, but had sold all of the inventory it had acquired from Hayley by the end of the year.
$$\begin{array} { l r r } & { \text { Rose } } &{ \text { Hayley } } \\\text { Sales } & \$ 2,582,000 & \$ 1,734,000 \\\text { Accounts receivable } & 580,000 & 235,000 \\\\\text { Sales to Hayley during year } & 80,000 & \\\text { Sales to Rose during year } & & 20,000 \\\text { Gross profit on all sales } & 25 \% & 30 \%\end{array}$$
What is the consolidated Accounts receivable balance at the end of the year?

A)$815,000
B)$795,000
C)$789,000
D)$775,000

Question 15

On January 1, 2016, Poe Corp.sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary.Poe paid $1,100,000 for this machine.On the sale date, accumulated depreciation was $250,000.Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy that Saxe continued.In Poe's December 31, 2016, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as ​
Cost Accumulated Depreciation

A)​$1,100,000 $300,000
B)​$1,100,000 $290,000
C)​$ 900,000 $ 40,000
D)​$ 850,000 $ 42,500

Question 16

Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years ago.On January 1, 2017, Pennie sold land with a book value of $60,000 to Stroud for $90,000.Stroud resold the land to an unrelated party for $100,000 on September 26, 2018.The land will be included in the December 31, 2017 consolidated balance sheet of Pennie, Inc.and Subsidiary at ____.

A)​$48,000
B)​$60,000
C)​$72,000
D)​$90,000

Question 17

On January 1, 2016 Bullock, Inc.sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain.The land is sold by Humphrey to an outside party in 2018.What is the effect of the intercompany sale of land on 2018 consolidated net income?​

A)​Consolidated net income will be the same as it would have been had the intercompany sale not occurred.
B)Consolidated net income will be $20,000 less than it would have been had the intercompany sale not occurred.​
C)​Consolidated net income will be $16,000 less than it would have been had the intercompany sale not occurred.
D)​Consolidated net income will be $20,000 greater than it would have been had the intercompany sale not occurred.

Question 18

Sally Corporation, an 80%-owned subsidiary of Reynolds Company, buys half of its raw materials from Reynolds.The transfer price is exactly the same price as Sally pays to buy identical raw materials from outside suppliers and the same price as Reynolds sells the materials to unrelated customers.In preparing consolidated statements for Reynolds Company and Subsidiary Sally Corporation,

A)​the intercompany transactions can be ignored because the transfer price represents arm's length bargaining.
B)​any unrealized profit from intercompany sales remaining in Reynolds' ending inventory must be offset against the unrealized profit in Reynolds' beginning inventory.
C)​any unrealized profit on the intercompany transactions in Sally's ending inventory is eliminated in its entirety.
D)​eighty percent of any unrealized profit on the intercompany transactions in Sally's ending inventory is eliminated.

Question 19

Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process?

A)​The subsidiary's payment of rent to its parent.
B)​The sale of merchandise by a parent to its subsidiary.
C)​The amount of a loan to the subsidiary made by its parent.
D)​None of the above.

Question 20

Cattle Company sold inventory with a cost of $40,000 to its 90%-owned subsidiary, Range Corp., for $100,000 in 2016.Range resold $75,000 of this inventory for $100,000 in 2016.Based on this information, the amount of inventory reported on the consolidated financial statements at the end of 2016 is:

A)​$10,000.
B)​$18,000.
C)​$21,000.
D)​$30,000.

Question 21

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what amount of income is attributable to the non-controlling interest? $\begin{array}{lr}\text { Phelps internally generated income: } & \$ 250,000 \\\text { Shore internally generated income: } & \$ 50,000 \\\text { Intercompany profit on Shore beginning inventory: } & \$ 10,000 \\\text { Intercompany profit on Shore ending inventory: } & \$ 15,000\end{array}$

A)$10,000
B)$9,000
C)$11,000
D)$7,000

Question 22

On 1/1/16 Peck sells a machine with a $20,000 book value to its subsidiary Shea for $30,000.Shea intends to use the machine for 4 years, which was the remaining life that Peck had at the time of the sale.Neither company had assigned a salvage value to the machine.On 12/31/17 Shea sells the machine to an outside party for $14,000.What amount of gain or (loss) for the sale of assets is reported on the consolidated financial statements in 2017?

A)​loss of $6,000
B)​loss of $1,000
C)​gain of $4,000
D)​gain of $14,000

Question 23

During 2018, a parent company billed its 100%-owned subsidiary for computer services at the rate of $1,000 per month.At year end, one month's bill remained unpaid.As a part of the consolidation process, net income

A)​should be reduced $12,000.
B)​should be reduced $1,000.
C)​needs no adjustment.
D)​needs an adjustment, but the amount is not provided by this information.

Question 24

Power Company owns a 70% controlling interest in the Shelton Company.Shelton regularly sells merchandise to Power, which then sells to outside parties.The gross profit on these sales is the same as sales to outside parties.On January 1, 2019, Power sold land and a building to Shelton.Twenty percent of the price of the real estate was allocated to land and the remaining amount to structures.Additional information for the companies for 2019 is summarized as follows:
?
?
$\begin{array}{lcc}& \text { Power } & { \text { Shelton } } \\\text { Sales } & \$ 2,250,000 & \$ 1,500,000 \\\text { Cost of goods sold } & 1,850,000 & 1,050,000 \\\text { Operating expenses } & 320,000 & 240,000\\\\ \text { Internally generated net income } & \$ 860,000 & \$ 435,000 \\ \text { Intercompany merchandise sales } & & 200,000 \\ \text { Intercompany inventory, end of year } & & 50,000 \\ \text { Intercompany inventory, beginning of year } & & 40,000 \\\text { Book value of real estate sold } & 150,000 \\\text { Sales price for real estate } & 220,000\\\text { Depreciable life of buil ding }&&14 \text { years }\end{array}$ Prepare income distribution schedules for 2019 for Power and Shelton as they would be prepared to distribute income to the non-controlling and controlling interests in support of consolidated worksheets.
?

Question 25

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what amount does Phelps Co.record as subsidiary income
$\begin{array}{lr}\text { Phelps internally generated income: } & \$ 250,000 \\\text { Shore internally generated income: } & \$ 50,000 \\\text { Intercompany profit on Shore beginning inventory: } & \$ 10,000 \\\text { Intercompany profit on Shore ending inventory: } & \$ 15,000\end{array}$

A)$50,000
B)$44,000
C)$40,000
D)$36,000

Question 26

On January 1, 2016, Parent Company acquired 100% of the common stock of Subsidiary Company for $750,000.On this date Subsidiary had total owners' equity of $540,000.
?
Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.
?
During 2016 and 2017, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method.
?
On January 1, 2017, Parent held merchandise acquired from Subsidiary for $10,000.During 2017, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 2017.Subsidiary's usual gross profit on affiliated sales is 40%.
?
On December 31, 2017, Parent still owes Subsidiary $20,000 for merchandise acquired in December.
?
On January 1, 2017, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.
?
Required:
?
Complete the Figure 4-3 worksheet for consolidated financial statements for the year ended December 31, 2017.
?
?
?

Question 27

To consolidate affiliated companies, intercompany sales must be eliminated.Assume that Company P sold merchandise costing $5,000 to a subsidiary Company S, for $5,200.Company S then sells the merchandise to an outside company for $5,600.If the affiliated companies do not eliminate the intercompany sale, the following would occur:

A)​The gross profit of $600 would be overstated and the cost of goods of $10,200 would be understated.
B)​The gross profit of $600 would be correct, sales and cost of goods sold are inflated because they are included twice.
C)​The gross profit percentage would be overstated.
D)​Sales are overstated but cost of goods sold and gross profit are correct.

Question 28

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what is consolidated net income
$\begin{array}{lr}\text { Phelps internally generated income: } & \$ 250,000 \\\text { Shore internally generated income: } & \$ 50,000 \\\text { Intercompany profit on Shore beginning inventory: } & \$ 10,000 \\\text { Intercompany profit on Shore ending inventory: } & \$ 15,000\end{array}$

A)$300,000
B)$295,000
C)$286,000
D)$305,000

Question 29

On January 1, 2016, a parent loaned $30,000 to its 100%-owned subsidiary on a 5-year, 8% note.The note requires a principal payment at the end of each year of $6,000 plus payment of interest accrued to date.The following accounts require adjustment in the consolidation process: ?
$\begin{array}{lll}&&\text { Controlling}\\\text { Assets}&\text { Debt}&\text { Retained Earnings}\\\end{array}$

A) $\begin{array}{lll}\text { Yes } & \text { Yes } &&&& \text { Yes } \\\end{array}$
B) $\begin{array}{lll}\text { No } & \text { No } &&&&& \text { Yes } \\\end{array}$
C) $\begin{array}{lll}\text { Yes } & \text { Yes } &&&& \text { No } \\\end{array}$
D) $\begin{array}{lll}\text { No } & \text { No } &&&&& \text { No }\end{array}$

Question 30

On January 1, 2016, Prange Company acquired 100% of the common stock of Seaman Company for $600,000.On this date Seaman had total owners' equity of $400,000.Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years.
?
During 2016 and 2017, Prange has appropriately accounted for its investment in Seaman using the simple equity method.
?
On January 1, 2017, Prange held merchandise acquired from Seaman for $30,000.During 2017, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 2017.Seaman's gross profit on all sales is 40%.
?
On December 31, 2017, Prange still owes Seaman $20,000 for merchandise acquired in December.
?
Required:
?
Complete the Figure 4-1 worksheet for consolidated financial statements for the year ended December 31, 2017.
?
?
?

Question 31

Account balances are as of December 31, 2018 except where noted.
?
?
Additional Information:
?
On January 2, 2018 Pipe purchased 90% of Match for $155,000.On that date Match's shareholders' equity equaled $150,000 and the fair values of Match's assets and liabilities equaled their carrying amounts.Excess, if any, is attributed to patents and is amortized over 10 years.
?
On September 4, 2018 Match paid cash dividends of $30,000.
?
On January 3, 2018 Match sold equipment with an original cost of $30,000 and a carrying value of $15,000 to Pipe for $36,000.The equipment had a remaining useful life of 3 years.Straight-line depreciation is used.
?
On January 4, 2018 Match signed an 8% Note Payable.All interest payments were made as of December 31, 2018.
?
During the year Match sold merchandise to Pipe for $60,000, which included a profit of $20,000.At year end 50% of the merchandise remained in Pipe's inventory.
?
Required:
?1.Which method is Pipe using to account for the investment in Match? How do you know?
2.What elimination entry(ies) are associated with the elimination of intercompany profits due to the sale of merchandise?
3.What elimination entry(ies) are necessary with the sale of equipment by Match to Pipe?
4.What elimination entry(ies) are associated with the note to Match? Why are the entry(ies) made?

Question 32

The following accounts were noted in reviewing the trial balance for Parent Co.and Subsidiary Corp.:
Assets under Construction
Contracts Receivable
Billings on Construction in Progress
Earned Income on Long-Term Contracts
Contracts Payable If these accounts pertain to a contract where Subsidiary Corp.is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co.consolidated financial statements?

A)Assets under Construction; Billings on Construction in Progress; Earned Income on Long-Term Contracts
B)Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts
C)Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable
D)Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable

Question 33

On January 1, 2016, Prange Company acquired 80% of the common stock of Seaman Company for $500,000.On this date Seaman had total owners' equity of $400,000.Any excess of cost over book value is attributable to patent, which is to be amortized over 20 years.
?
During 2016 and 2017, Prange has appropriately accounted for its investment in Seaman using the simple equity method.
?
On January 1, 2017, Prange held merchandise acquired from Seaman for $30,000.During 2017, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 2017.Seaman's gross profit on all sales is 40%.
?
On December 31, 2017, Prange still owes Seaman $20,000 for merchandise acquired in December.
?
Required:
?
Complete the Figure 4-2 worksheet for consolidated financial statements for the year ended December 31, 2017.
?
?
?

Question 34

Patti Corp.has several subsidiaries (Aeta, Beta, and Gaeta) that are included in its consolidated financial statements.In its 12/31/16 separate balance sheet, Patti had the following intercompany balances before eliminations:
$$\begin{array} { l r r } & \text { Debit } & \text { Credit } \\\text { Current Receivable due from Aeta } & \$ 40,000 & \\\text { Noncurrent Receivable due from Beta } & 100,000 & \\\text { Cash Advance to Beta } & 26,000 & \\\text { Cash Advance from Gaeta } & & \$ 75,000 \\\text { Intercompany Payable to Gaeta } & & 40,000\end{array}$$ In its 12/31/16 consolidated balance sheet, what amount should Patti report as intercompany receivables?

A)$166,000
B)$51,000
C)$26,000
D)$0

Question 35

Company P owns 100% of the common stock of Company S.Company P is constructing an asset for Company S that will be used in Company S's manufacturing operations over a 5-year period.The asset was 50% complete at the end of 2016 and was completed on December 31, 2017.Company P is recording the construction under the percentage of completion method.The asset was put into use by Company S on January 1, 2018.The profit on the asset was estimated to be $50,000.Actual results complied with the estimate.On the consolidated statements, the profit recognized will be ?
?
$\quad$ 2016 $\quad$$\quad$ 2017 $\quad$ 2018 $\quad$ 2019 - 2017

A)? $\quad$ 0 $\quad$$\quad$ 50,000 $\quad$ 0 $\quad$$\quad$$\quad$ $\quad$ 0
B)? $\quad$ 25,000 $\quad$ 25,000 $\quad$ 0 $\quad$$\quad$$\quad$ 0
C) $\quad$ 0 $\quad$$\quad$$\quad$ 0 $\quad$$\quad$ 10,000 $\quad$ 10,000/year?
D) $\quad$ 0 $\quad$$\quad$$\quad$ 0 $\quad$$\quad$ 50,000 $\quad$$\quad$ 0

Question 36

On January 1, 2016, Parent Company acquired 80% of the common stock of Subsidiary Company for $560,000.On this date Subsidiary had total owners' equity of $540,000, including retained earnings of $240,000.During 2016, Subsidiary had net income of $60,000 and paid no dividends.
?
Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.
?
During 2016 and 2017, Parent has appropriately accounted for its investment in Subsidiary using the cost method.
?
On January 1, 2017, Parent held merchandise acquired from Subsidiary for $10,000.During 2017, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 2017.Subsidiary's usual gross profit on affiliated sales is 40%.
?
On December 31, 2017, Parent still owes Subsidiary $20,000 for merchandise acquired in December.
?
On January 1, 2017, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.
?
Required:
?
Complete the Figure 4-4 worksheet for consolidated financial statements for the year ended December 31, 2017.
?
?
?

Question 37

If subsidiary net income is $15,000 for Company S and parent Company P has a 75% interest in subsidiary Company S, what would be the elimination entry for the current-year equity income of Company S:

A)​Debit Investment in Company S $15,000 and credit Subsidiary Income $15,000
B)​Debit Subsidiary Income $11,250 and credit Investment in Company S $11,250
C)​Debit Subsidiary Income $15,000 and credit Subsidiary Income $15,000
D)​Debit Investment in Company S $11,250 and credit Subsidiary Income $11,250

Question 38

Selected information from the separate and consolidated balance sheets and income statements of Palo Alto, Inc.and its subsidiary, Stanford Co., as of December 31, 2016, and for the year then ended is as follows:
?
?
$\begin{array}{lrrr}&\text { Palo Alto }&\text {Stanford }&\text {Consolidated }\\\text { Balance sheet accounts: } & & & \\ \text { Accounts receivable } & \$ 26,000 & \$ 19,000 & \$ 42,000 \\\text { Inventory } & 30,000 & 25,000 & 50,000 \\\text { Investment in Stanford } & 67,000 & - & - \\\text { Stockholders' equity } & 154,000 & 50,000 & 154,000\\\\\text { Income statement accounts: }\\\text { Revenues } & \$ 200,000 & \$ 140,000 & \$ 300,000 \\\text { Cost of goods sold } & 150,000 & 110,000 & 225,000 \\\quad \text { Gross profit } & 50,000 & 30,000 & 75,000 \\& & & \\\text { Equity in earnings of Stanford } & \$ 9,000 & -- & -- \\\quad \text { Net income } & \$ 36,000 & \$ 20,000 & \$ 36,000\end{array}$
Additional information:
?
During 2016, Palo Alto sold goods to Stanford at the same markup on cost that Palo Alto uses for all sales.At December 31, 2016, Stanford had not paid for all of these goods and still held 50% of them in inventory.
?
Palo Alto acquired its interest in Stanford five years earlier (as of December 31, 2016).
?
Required:
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For each of the following items, calculate the required amount.
?
a.The amount of intercompany sales from Palo Alto to Stanford during 2016.?
?
b.The amount of Stanford's payable to Palo Alto for intercompany sales as of December 31, 2016.?
?
c.In Palo Alto's December 31, 2016, consolidated balance sheet, the carrying amount of the inventory that Stanford purchased from Palo Alto.?

Question 39

On January 1, 2016, Parent Company acquired 100% of the common stock of Subsidiary Company for $750,000.On this date Subsidiary had total owners' equity of $540,000.
​
Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.
​
During 2016 and 2017, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method.
​
On January 1, 2017, Parent held merchandise acquired from Subsidiary for $10,000.During 2017, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 2017.Subsidiary's usual gross profit on affiliated sales is 40%.
​
On December 31, 2017, Parent still owes Subsidiary $20,000 for merchandise acquired in December.
​
On January 1, 2017, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.
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Required:
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Prepare the worksheet eliminations that would be made on the 2017 consolidated worksheet as a result of:
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1) the intercompany sale of inventory
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2) the intercompany sale of equipment

Question 40

On January 1, 2016, Pinto Company purchased an 80% interest in Sands Inc.for $1,000,000.The equity balances of Sands at the time of the purchase were as follows:
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$$\begin{array} { l r } \text { Common stock ( } \$ 10 \mathrm { par } ) & \$ 100,000 \\\text { Paid-in capital in excess of par } & 400,000 \\\text { Retained earnings } & 500,000\end{array}$$ Any excess of cost over book value is attributable to goodwill.
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No dividends were paid by either firm during 2016.The following trial balances were prepared for Pinto Company and its subsidiary, Sands Inc., on December 31, 2016:
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$$\begin{array} { l r r } & \text { Pinto } & \text { Sands } \\\text { Cash } & 120,000 & 70,000 \\\text { Accounts receivable } & 240,000 & 197,000 \\\text { Inventory } & 200,000 & 176,000 \\\text { Land } & 600,000 & 180,000 \\\text { Buildings and equipment } & 1,100,000 & 800,000 \\\text { Accumulated depreciation } & ( 180,000 ) & ( 120,000 ) \\\text { Investment in Sands } & 1,000,000 & \\\text { Accounts payable } & ( 110,000 ) & ( 50,000 ) \\\text { Common stock, \$10 par } & ( 800,000 ) & ( 100,000 ) \\\text { Paid-in capital in excess of par } & ( 660,000 ) & ( 400,000 ) \\\text { Retained earnings } & ( 1,340,000 ) & ( 650,000 ) \\\text { Sales } & ( 600,000 ) & ( 300,000 ) \\\text { Other income } & ( 40,000 ) & ( 15,000 ) \\\text { Cost of goods sold } & 320,000 & 180,000 \\\text { Other expenses } & 150,000 & 32,000 \\{ \text { Total } } & - & -\end{array}$$ Sands sold a machine to Pinto Company for $40,000 on January 1, 2016.The machine cost Sands $50,000, and $25,000 of accumulated depreciation had been recorded as of the sale date.The machine had a 5-year remaining life and no salvage value.Pinto Company is using straight-line depreciation.
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Since the purchase date, Pinto has sold merchandise for resale to Sands, Inc.at a mark-up on cost of 25%.Sales during 2016 were $150,000.The inventory of these goods held by Sands was $15,000 on January 1, 2016, and $18,000 on December 31, 2016.
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Required:
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Prepare a consolidated income statement for 2016, including income distribution schedules to support your distribution of income to the non-controlling and controlling interest interests.

Question 41

On January 1, 2016, Powers Company acquired 80% of the common stock of Sculley Company for $195,000.On this date Sculley had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively).
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Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents.FIFO is used for inventories.The equipment has a remaining life of five years and straight-line depreciation is used.The excess to the patents is to be amortized over 20 years.
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On July 1, 2017 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity.
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On January 1, 2017, Powers held merchandise acquired from Sculley for $10,000.During 2017, Sculley sold merchandise to Powers for $50,000, $20,000 of which is still held by Powers on December 31, 2017.Sculley's usual gross profit on affiliated sales is 50%.
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On December 31, 2016, Powers sold equipment to Sculley at a gain of $10,000.During 2017, the equipment was used by Sculley.Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.
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Both companies have a calendar-year fiscal year.
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Assume that during 2016 and 2017, Powers has appropriately accounted for its investment in Sculley using the cost method.
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Required:
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a.Using the information above or on the Figure 4-5 worksheet, prepare a determination and distribution of excess schedule.?
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b.Complete the Figure 4-5 worksheet for consolidated financial statements for the year ended December 31, 2017.?
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Question 42

For each of the following intercompany transactions, state the principle to be used in accounting for intercompany gains on current and future consolidated income statements:
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a.Gains on merchandise sales
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b.Gains on the sale of land
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c.Gains on the sale of depreciable fixed assets
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d.Interest on intercompany notes
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Question 43

On January 1, 2016, Pep Company acquired 80% of the common stock of Sky Company for $195,000.On this date Sky had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively).
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Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents.FIFO is used for inventories.The equipment has a remaining life of five years and straight-line depreciation is used.The excess attributable to the patents is to be amortized over 20 years.
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During 2016 and 2017, Pep has appropriately accounted for its investment in Sky using the simple equity method.
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On January 1, 2017, Pep held merchandise acquired from Sky for $10,000.During 2017, Sky sold merchandise to Pep for $50,000, $20,000 of which is still held by Pep on December 31, 2017.Sky's usual gross profit on affiliated sales is 50%.
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On December 31, 2016, Pep sold equipment to Sky at a gain of $10,000.During 2017, the equipment was used by Sky.Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.
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Required:
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a.Using the information above or on the Figure 4-6 worksheet, prepare a determination and distribution of excess schedule.?
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b.Complete the Figure 4-6 worksheet for consolidated financial statements for the year ended December 31, 2017.?
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