Question 1

Big Corporation receives management consulting services from its 92 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported net income of $695,000.
-Based on the preceding information,what amount of consolidated net income should be reported in 20X8?

Accepted Answer

A

Question 2

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
 
-Based on the preceding information,what amount of gain or loss on sale of land should be reported in the consolidated income statement for 20X8?

Accepted Answer

Without specific preceding information, it's impossible to calculate or justify the exact amount of gain or loss on the sale of land. However, if an option is marked as correct, it suggests that the scenario provided in the question led to no gain or loss being reported in the consolidated income statement for the year in question.

Question 3

Phobos Company holds 80 percent of Deimos Company's voting shares.During the preparation of consolidated financial statements for 20X9,the following consolidating entry was made:

Which of the following statements is correct?

Accepted Answer

D

Question 4

Which worksheet consolidation entry will be made on December 31,20X3,if Allen Corporation had initially purchased the land for $60,000 and then sold it to Hilldale on August 7,20X2,for $35,000?

Accepted Answer

The entry to eliminate the intercompany sale between Allen Corporation and Hilldale would be made on the consolidation worksheet at the end of the fiscal year, i.e. December 31, 20X3. As Allen Corporation initially purchased the land for $60,000 and then sold it to Hilldale for $35,000 on August 7, 20X2, a gain of $25,000 was recognized at that time. This gain needs to be eliminated in the consolidation worksheet to avoid overstating the consolidated income. Hence, the consolidation entry would be to debit the land account for $60,000 and credit the gain on sale of land account for $25,000 and the land account for $35,000. The option C represents this entry.

Question 5

Blue Company owns 70 percent of Black Company's outstanding common stock.On December 31,20X8,Black sold equipment to Blue at a price in excess of Black's carrying amount,but less than its original cost.On a consolidated balance sheet at December 31,20X8,the carrying amount of the equipment should be reported at:

Accepted Answer

The consolidated financial statements should reflect the economic reality of the transaction between Blue and Black. Blue owns 70% of Black and the equipment was sold to Blue from Black. Therefore, the equipment's carrying amount on the consolidated balance sheet should be reported at Blue's original cost, less the amount of the gain that Black recorded on the sale. This results in Option C being the correct choice.

Question 6

Big Corporation receives management consulting services from its 92 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported net income of $695,000.
-Based on the preceding information,what amount of income should be assigned to the noncontrolling shareholders in the consolidated income statement for 20X8?

Accepted Answer

The answer of Big Corporation receives management consulting services from...

Question 7

Big Corporation receives management consulting services from its 92 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported net income of $695,000.
-Based on the preceding information,what amount of receivable/payable should be eliminated in the 20X8 consolidated financial statements?

Accepted Answer

The amount of payable that should be eliminated is the amount that Small billed Big for in the current year but has not been collected by year-end. This amount is $7,900, as stated in the question. Option A is incorrect because it refers to the amount paid by Big to Small in the previous year, which is not relevant for elimination purposes. Option C is incorrect because it does not reflect any of the amounts in the question. Option D is incorrect because it refers to the total amount billed by Small to Big, but we need to focus on the amount that has not been collected by year-end for elimination purposes.

Question 8

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies:
  Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,what amount of gain or loss on the sale of land should be reported in the consolidated income statement for 20X5?

Accepted Answer

The correct answer is $0 because in a consolidated income statement, intercompany transactions, including sales of assets between the parent company and its subsidiaries, are eliminated. This means any gain or loss from such sales is not recognized in the consolidated financial statements.

Question 9

Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I.in the year of the downstream sale.
II.over the period of time the subsidiary uses the land.
III.in the year the subsidiary sells the land to an unrelated party.

Accepted Answer

In a downstream sale of land (from parent to subsidiary), any gain or loss is not recognized in the consolidated financial statements until the subsidiary sells the land to an unrelated third party. This is because, from a consolidated perspective, the transaction is considered internal and thus does not impact consolidated net income until the land is sold outside the economic entity.

Question 10

A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:

Accepted Answer

The answer of A parent and its 80 percent owned...

Question 11

ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
-Based on the preceding information,what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X8?

Accepted Answer

The answer of ABC Corporation purchased land on January 1,...

Question 12

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies:
  Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?

Accepted Answer

The amount of income assigned to the controlling shareholders in the consolidated income statement typically reflects the parent company's share of the subsidiary's net income, in addition to its own net income. Without specific preceding information, the correct answer cannot be determined based on calculations or specific details. However, if B is indicated as the correct answer, it suggests that based on the provided data (which is not visible in this format), $474,000 is the calculated amount reflecting the income attributable to the controlling interest after considering any necessary adjustments and eliminations in the consolidation process.

Question 13

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies:
  Patch reported income from its separate operations of $345,000 for 20X5.
-Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X5?

Accepted Answer

The answer of Patch Corporation purchased land from Sub1 Corporation...

Question 14

Hilldale Corporation purchased land on January 1, 20X0, for $60,000. On August 7, 20X2, it sold the land to its subsidiary, Allen Corporation, for $35,000. Hilldale owns 60 percent of Allen's voting shares
-Based on the preceding information,what will be the worksheet consolidation entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X2?

Accepted Answer

The worksheet consolidation entry to remove the effects of the intercompany sale of land would involve eliminating both the land and the gain/loss on sale. Option B shows the correct elimination entry, which includes debiting the land account and crediting the gain/loss on sale account, both for $25,000. This eliminates the effects of the intercompany sale on the consolidated financial statements. Options A, C, and D are incorrect as they do not reflect the proper elimination of the intercompany land sale.

Question 15

ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
-Based on the preceding information,what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X9?

Accepted Answer

To eliminate the effects of the intercompany sale of land, we need to remove both the cost and the gain on the sale from the consolidated financial statements.

Option A shows the worksheet consolidating entry to eliminate the gain on sale, which is calculated as the difference between the selling price and the cost. Since ABC owns 80 percent of XYZ, the gain on sale should be eliminated by reducing ABC's retained earnings (by $16,000) and XYZ's non-controlling interest (by $4,000).

Option B shows the worksheet entry to eliminate the cost of the land, which is not necessary since the cost of the land was already eliminated in the initial consolidation process.

Option C shows the opposite of what should be done. It adds the gain on sale to the consolidated net income, which would overstate the income.

Option D is irrelevant to the question since it shows the consolidation process for a different account (accounts receivable).

Question 16

Which worksheet consolidating entry will be made on December 31,20X9,if XYZ Corporation had initially purchased the land for $50,000 and then sold it to ABC on July 15,20X8,for $70,000?

Accepted Answer

Since the land was sold by XYZ Corporation in July 2018, it will not be included in the December 31, 2019, consolidation entry. Therefore, option A and D can be eliminated. 
Option C includes the land as if it were still owned by XYZ Corporation, which is incorrect. 
Option B is the correct choice as it eliminates the land from the consolidation entry as it was sold in the prior year.

Question 17

Hilldale Corporation purchased land on January 1, 20X0, for $60,000. On August 7, 20X2, it sold the land to its subsidiary, Allen Corporation, for $35,000. Hilldale owns 60 percent of Allen's voting shares
-Based on the preceding information,what will be the worksheet consolidation entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X3?

Accepted Answer

The answer of Hilldale Corporation purchased land on January 1,...

Question 18

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
 
-Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X8?

Accepted Answer

The answer of Parent Corporation purchased land from S1 Corporation...

Question 19

A wholly owned subsidiary sold land to its parent during the year at a gain.The parent continues to hold the land at the end of the year.The amount to be reported as consolidated net income for the year should equal:

Accepted Answer

The intercompany gain recognized on the sale of the land should be eliminated in the consolidation process, as it represents a transaction between two entities within the same group. Therefore, the consolidated net income for the year should equal the parent's separate operating income plus the subsidiary's net income, minus the intercompany gain.

Question 20

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
 
-Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8?

Accepted Answer

The gain on the sale of the land to S2 Company by S3 Corporation is $145,000 - $160,000 = -$15,000, which is eliminated in consolidation. The gain on the sale of the land to S1 Corporation by S2 Company is $197,000 - $145,000 = $52,000, which is also eliminated in consolidation. Therefore, the cost of the land to Parent Corporation is $220,000, which is the only relevant figure for consolidation purposes. Since Parent reported income from its separate operations of $200,000 for 20X8, the consolidated income for the controlling shareholders is $200,000 + $220,000 = $420,000. However, the affiliates' share of the consolidated income is $420,000 x 10% = $42,000, which should be deducted from the consolidated income to arrive at the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8, which is $420,000 - $42,600 = $369,400. Therefore, the correct answer is A) $369,400.

Quiz 7: Intercompany Transfers of Services and Noncurrent Assets

Phobos Company holds 80 percent of Deimos Company's voting shares.During the preparation of consolidated financial statements for 20X9,the following consolidating entry was made: Which of the following statements is correct?

Which worksheet consolidation entry will be made on December 31,20X3,if Allen Corporation had initially purchased the land for $60,000 and then sold it to Hilldale on August 7,20X2,for $35,000?

Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income: I.in the year of the downstream sale. II.over the period of time the subsidiary uses the land. III.in the year the subsidiary sells the land to an unrelated party.

A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:

Which worksheet consolidating entry will be made on December 31,20X9,if XYZ Corporation had initially purchased the land for $50,000 and then sold it to ABC on July 15,20X8,for $70,000?

A wholly owned subsidiary sold land to its parent during the year at a gain.The parent continues to hold the land at the end of the year.The amount to be reported as consolidated net income for the year should equal: