Test bank advanced financial accounting ch 06 intercompany transfers of services and noncurrent

Based on the information provided, in the preparation of the 2008 consolidated financialstatements, building will be _____ in the eliminating entries.. Based on the information provided,

Chapter 06 Intercompany Transfers of Services and Noncurrent AssetsMultiple Choice Questions

1 Blue Company owns 70 percent of Black Company's outstanding common stock On

December 31, 2008, Black sold equipment to Blue at a price in excess of Black's carryingamount, but less than its original cost On a consolidated balance sheet at December 31, 2008,the carrying amount of the equipment should be reported at:

A Blue's original cost

B Black's original cost

C Blue's original cost less Black's recorded gain

D Blue's original cost less 70 percent of Black's recorded gain

2 A parent and its 80 percent owned subsidiary have made several intercompany sales ofnoncurrent 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:

A unrealized in the second year from upstream sales made in the second year

B realized in the second year from downstream sales made in both years

C realized in the second year from upstream sales made in both years

D both realized and unrealized from upstream sales made in the second year

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

A the parent's separate operating income, plus the subsidiary's net income

B the parent's separate operating income, plus the subsidiary's net income, minus the

Sky Corporation owns 75 percent of Earth Company's stock On July 1, 2008, Sky sold abuilding to Earth for $33,000 Sky had purchased this building on January 1, 2006, for

$36,000 The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation The equipment's residual value is considerednegligible

4 Based on the information provided, in the preparation of the 2008 consolidated financialstatements, building will be _ in the eliminating entries

6 Based on the information provided, while preparing the 2008 consolidated income

statement, depreciation expense will be:

A debited for $750 in the eliminating entries

B credited for $750 in the eliminating entries

C credited for $1500 in the eliminating entries

D debited for $1500 in the eliminating entries

7 Based on the information provided, in the preparation of the 2009 consolidated incomestatement, depreciation expense will be:

8 Based on the information provided, in the preparation of a consolidated balance sheet atJanuary 1, 2009, retained earnings will be:

A debited for $6,750 in the eliminating entries

B credited for $6,750 in the eliminating entries

C credited for $7,500 in the eliminating entries

D debited for $7,500 in the eliminating entries

9 Phobos Company holds 80 percent of Deimos Company's voting shares During the

preparation of consolidated financial statements for 2009, the following eliminating entry wasmade:

Which of the following statements is correct?

A Phobos Company purchased land from Deimos Company during 2009

B Phobos Company purchased land from Deimos Company before January 1, 2009

C Deimos Company purchased land from Phobos Company during 2009

D Deimos Company purchased land from Phobos Company before January 1, 2009

ABC Corporation purchased land on January 1, 2006, for $50,000 On July 15, 2008, it soldthe land to its subsidiary, XYZ Corporation, for $70,000 ABC owns 80 percent of XYZ'svoting shares

10 Based on the preceding information, what will be the workpaper eliminating entry toremove the effects of the intercompany sale of land in preparing the consolidated financialstatements for 2008?

A Option A

B Option B

C Option C

D Option D

11 Based on the preceding information, what will be the workpaper eliminating entry toremove the effects of the intercompany sale of land in preparing the consolidated financialstatements for 2009?

A Option A

B Option B

C Option C

D Option D

12 Which workpaper eliminating entry will be made on December 31, 2009, if XYZ

Corporation had initially purchased the land for $50,000 and then sold it to ABC on July 15,

expected to have a 10-year useful life and no salvage value Both companies depreciateequipments on a straight-line basis

13 Based on the preceding information, in the preparation of the 2008 consolidated financialstatements, equipment will be:

14 Based on the preceding information, the gain on sale of the equipment recorded by Mortarfor 2008 is:

A debited for $25,000 in the eliminating entries

B credited for $15,000 in the eliminating entries

C debited for $15,000 in the eliminating entries

D credited for $25,000 in the eliminating entries

17 Based on the preceding information, in the preparation of the 2009 consolidated balancesheet, accumulated depreciation will be:

A debited for $160,000 in the eliminating entries

B credited for $160,000 in the eliminating entries

C credited for $135,000 in the eliminating entries

D debited for $135,000 in the eliminating entries

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock onJanuary 1, 2007 On January 1, 2008, Mortar received $350,000 from Granite for a equipmentMortar had purchased on January 1, 2005, for $400,000 The equipment is expected to have a10-year useful life and no salvage value Both companies depreciate equipments on a straight-line basis

18 Based on the preceding information, in the preparation of the 2008 consolidated financialstatements, equipment will be:

A debited for $50,000 in the eliminating entries

B credited for $110,000 in the eliminating entries

C credited for $120,000 in the eliminating entries

D debited for $160,000 in the eliminating entries

21 Based on the preceding information, in the preparation of the 2009 consolidated incomestatement, depreciation expense will be:

A Debited for $40,000 in the eliminating entries

B Credited for $10,000 in the eliminating entries

C Debited for $10,000 in the eliminating entries

D Credited for $40,000 in the eliminating entries

22 Based on the preceding information, in the preparation of the 2009 consolidated balance

On January 1, 2007, Servant Company purchased a machine with an expected economic life

of five years On January 1, 2009, Servant sold the machine to Master Corporation andrecorded the following entry:

Master Corporation holds 75 percent of Servant's voting shares Servant reported net income

of $50,000, and Master reported income from its own operations of $100,000 for 2009 There

is no change in the estimated economic life of the equipment as a result of the intercorporatetransfer

23 Based on the preceding information, in the preparation of the 2009 consolidated incomestatement, depreciation expense will be:

A Debited for $1,000 in the eliminating entries

B Credited for $1,000 in the eliminating entries

C Debited for $15,000 in the eliminating entries

D Credited for $15,000 in the eliminating entries

24 Based on the preceding information, in the preparation of the 2009 consolidated balancesheet, machine will be:

A debited for $1,000

B debited for $15,000

C credited for $45,000

D debited for $25,000

25 Based on the preceding information, income assigned to the noncontrolling interest in the

2009 consolidated income statement will be:

accumulated depreciation of $170,000 Light estimated a $50,000 salvage value and

depreciated the tractor using the straight-line method over 10 years, a policy that Star

continued In Light's December 31, 2009, consolidated balance sheet, this tractor should beincluded in fixed-asset cost and accumulated depreciation as:

A Option A

B Option B

C Option C

D Option D

Blue Corporation holds 70 percent of Black Company's voting common stock On January 1,

2003, Black paid $500,000 to acquire a building with a 10-year expected economic life Blackuses straight-line depreciation for all depreciable assets On December 31, 2008, Blue

purchased the building from Black for $180,000 Blue reported income, excluding investmentincome from Black, of $140,000 and $162,000 for 2008 and 2009, respectively Black

reported net income of $30,000 and $45,000 for 2008 and 2009, respectively

28 Based on the preceding information, the amount to be reported as consolidated net incomefor 2008 will be:

32 Which of the following are examples of intercompany balances and transactions that must

be eliminated in preparing consolidated financial statements?

I Security holdings

II Interest and dividends

III Sales and purchases

Parent reported income from its separate operations of $200,000 for 2008

33 Based on the preceding information, at what amount should the land be reported in theconsolidated balance sheet as of December 31, 2008?

A $145,000

B $220,000

C $197,000

D $160,000

34 Based on the preceding information, what amount of gain or loss on sale of land should bereported in the consolidated income statement for 2008?

Big Corporation receives management consulting services from its 92 percent owned

subsidiary, Small Inc During 2007, Big paid Small $125,432 for its services For the year

2008, 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 Bigtotaled $86,000 in 2007 and $121,000 in 2008 Big reported $2,567,000 of income from itsown separate operations for 2008, and Small reported net income of $695,000

36 Based on the preceding information, what amount of consolidated net income should bereported in 2008?

38 Based on the preceding information, what amount of receivable/payable should be

eliminated in the 2008 consolidated financial statements?

A $125,432

B $7,900

C $5,560

D $140,000

39 A parent sold land to its partially owned subsidiary during the year at a loss The

subsidiary continues to hold the land at the end of the year The amount to be reported asconsolidated net income for the year should equal:

A the parent's separate operating income, plus the intercompany loss

B the parent's separate operating income, plus the intercompany loss, plus the subsidiary's netincome

C the parent's separate operating income, minus the intercompany loss

D the parent's separate operating income, minus the intercompany loss, plus the subsidiary'snet income

40 Any intercompany gain or loss on a downstream sale of land should be recognized inconsolidated 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

41 Fred Corporation owns 75 percent of Winner Company's voting shares, acquired onMarch 21, 2005, at book value At that date, the fair value of the noncontrolling interest wasequal to 25 percent of the book value of Winner Company The companies' permanentaccounts on December 31, 2008, contained the following balances:

On January 1, 2004, Fred paid $150,000 for equipment with a 10-year expected total

economic life The equipment was depreciated on a straight-line basis with no residual value.Winner purchased the equipment from Fred on December 31, 2006, for $140,000 Winnersold land it had purchased for $75,000 on February 18, 2004, to Fred for $60,000 on October

10, 2007

Required: Prepare a consolidated balance sheet workpaper in good form as of December 31,2008

42 New Company acquired 75 percent of Old Company's stock at underlying book value onJanuary 1, 2008 At that date, the fair value of the noncontrolling interest was equal to 25percent of the book value of Old Company Old Company reported shares outstanding of

$350,000 and retained earnings of $100,000 During 2008, Old Company reported net income

of $60,000 and paid dividends of $3,000 In 2009, Old Company reported net income of

$90,000 and paid dividends of $15,000 The following transactions occurred between NewCompany and Old Company in 2008 and 2009:

Old Co sold computer equipment to New Co for a $42,000 profit on December 26, 2008.The equipment had a five-year estimated economic life remaining at the time of intercompanytransfer and is depreciated on a straight-line basis

New sold land costing $90,000 to Old Company on June 28, 2009, for $110,000

Required:

1) Give all eliminating entries needed to prepare a consolidation workpaper for 2009

assuming that New Co uses the fully adjusted equity method to account for its investment inOld Company

2) Give all eliminating entries needed to prepare a consolidation workpaper for 2009

assuming that New Co uses the cost method to account for its investment in Old Company

43 Peter Architectural Services owns 100 percent of Smith Manufacturing During the course

of 2008 Peter provides $100,000 of architectural services associated with Smith's new

manufacturing facility, which will open January 4, 2009, and has a 5 year useful life Explainthe impact providing this service has on Peter Architectural Services' 2008 and 2009

consolidated financial statements

44 PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percentowned subsidiary, on January 1, 2008 The cost of the land was $75,000, when it was

purchased in 2007 In 2010, Seven Star sells the land to Hot Properties Inc., an unrelatedentity, for $120,000 How is the land reported in the consolidated financial statements for

2008, 2009 and 2010?

Chapter 06 Intercompany Transfers of Services and Noncurrent Assets Answer Key

Multiple Choice Questions

1 Blue Company owns 70 percent of Black Company's outstanding common stock OnDecember 31, 2008, Black sold equipment to Blue at a price in excess of Black's carryingamount, but less than its original cost On a consolidated balance sheet at December 31, 2008,the carrying amount of the equipment should be reported at:

A.Blue's original cost

B.Black's original cost

C Blue's original cost less Black's recorded gain.

D.Blue's original cost less 70 percent of Black's recorded gain

AACSB: Analytic

AICPA: Reporting

2 A parent and its 80 percent owned subsidiary have made several intercompany sales ofnoncurrent 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:

A.unrealized in the second year from upstream sales made in the second year

B.realized in the second year from downstream sales made in both years

C realized in the second year from upstream sales made in both years.

D.both realized and unrealized from upstream sales made in the second year

AACSB: Analytic

AICPA: Reporting

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

A.the parent's separate operating income, plus the subsidiary's net income

B the parent's separate operating income, plus the subsidiary's net income, minus the

AICPA: Decision Making

Sky Corporation owns 75 percent of Earth Company's stock On July 1, 2008, Sky sold abuilding to Earth for $33,000 Sky had purchased this building on January 1, 2006, for

$36,000 The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation The equipment's residual value is considerednegligible

4 Based on the information provided, in the preparation of the 2008 consolidated financialstatements, building will be _ in the eliminating entries.

A.debited for $750 in the eliminating entries

B credited for $750 in the eliminating entries.

C.credited for $1500 in the eliminating entries

D.debited for $1500 in the eliminating entries

AACSB: Analytic

AICPA: Measurement

7 Based on the information provided, in the preparation of the 2009 consolidated incomestatement, depreciation expense will be:

A.debited for $750 in the eliminating entries

B.credited for $750 the eliminating entries

C credited for $1500 in the eliminating entries.

D.debited for $1500 in the eliminating entries

AACSB: Analytic

AICPA: Measurement

8 Based on the information provided, in the preparation of a consolidated balance sheet atJanuary 1, 2009, retained earnings will be:

A.debited for $6,750 in the eliminating entries

B.credited for $6,750 in the eliminating entries

C.credited for $7,500 in the eliminating entries

D debited for $7,500 in the eliminating entries.

AACSB: Analytic

AICPA: Measurement

9 Phobos Company holds 80 percent of Deimos Company's voting shares During the

preparation of consolidated financial statements for 2009, the following eliminating entry wasmade:

Which of the following statements is correct?

A.Phobos Company purchased land from Deimos Company during 2009

B.Phobos Company purchased land from Deimos Company before January 1, 2009

C.Deimos Company purchased land from Phobos Company during 2009

D Deimos Company purchased land from Phobos Company before January 1, 2009.