Multiple Choice Quiz

Choose the best answer for each of the following questions and enter the identifying letter in the space provided.

During the fiscal year ended May 31, 2003, Swope Company, the 80%-owned subsidiary of Pone Corporation, sold merchandise to its parent company at billed prices totaling $360,000, representing a 220% markup on Swope's cost. On May 31, 2003, Pone's inventories included merchandise totaling $54,000 purchased from Swope¾a $12,000 increase over the comparable June 1, 2002, amount.

1		The total amount to be eliminated for consolidated costs of goods sold of Pone Corporation and subsidiary for the fiscal year ended May 31, 2003, is:
			A)	$58,000
			B)	$60,000
			C)	$300,000
			D)	Some other amount

During the fiscal year ended May 31, 2003, Swope Company, the 80%-owned subsidiary of Pone Corporation, sold merchandise to its parent company at billed prices totaling $360,000, representing a 220% markup on Swope's cost. On May 31, 2003, Pone's inventories included merchandise totaling $54,000 purchased from Swope¾a $12,000 increase over the comparable June 1, 2002, amount.

2		In the working paper elimination (in journal entry format) for Pone Corporation and subsidiary on May 31, 2003, Minority Interest in Net Assets of Subsidiary is debited in the amount of:
			A)	$0
			B)	$1,400
			C)	$7,000
			D)	Some other amount

During the fiscal year ended May 31, 2003, Swope Company, the 80%-owned subsidiary of Pone Corporation, sold merchandise to its parent company at billed prices totaling $360,000, representing a 220% markup on Swope's cost. On May 31, 2003, Pone's inventories included merchandise totaling $54,000 purchased from Swope¾a $12,000 increase over the comparable June 1, 2002, amount.

3		In the working paper elimination (in journal entry format) for Pone Corporation and subsidiary on May 31, 2003, Inventories¾Pone is credited in the amount of:
			A)	$7,000
			B)	$9,000
			C)	$54,000
			D)	Some other amount

On November 1, 2003, the beginning of a fiscal year, Parsifal Corporation sold to its 85%-owned subsidiary, Sazerac Company, for $75,000 a machine with a cost and a carrying amount to Parsifal of $100,000 and $60,000, respectively, on that date. Sazerac adopted the straight-line method of depreciation and established a six-year economic life and no residual value for the machine.

4		In the November 1, 2003, journal entry to record the acquisition of the machine, Sazerac Company credits Accumulated Depreciation of Machinery in the amount of:
			A)	$0
			B)	$30,000
			C)	$40,000
			D)	Some other amount

On November 1, 2003, the beginning of a fiscal year, Parsifal Corporation sold to its 85%-owned subsidiary, Sazerac Company, for $75,000 a machine with a cost and a carrying amount to Parsifal of $100,000 and $60,000, respectively, on that date. Sazerac adopted the straight-line method of depreciation and established a six-year economic life and no residual value for the machine.

5		In the working paper elimination (in journal entry format) for Parsifal Corporation and subsidiary on October 31, 2004, the end of the fiscal year, Depreciation Expense¾Sazerac is credited in the amount of:
			A)	$0
			B)	$2,500
			C)	$12,500
			D)	Some other amount

Questions 6 through 8 are based on the following information: On July 31, 2003, the end of a fiscal year, Senegal Company, the 99%-owned subsidiary of Portugal Corporation, acquired in the open market for $93,660 (a 10% yield) plus accrued interest, $100,000 face amount of Portugal's outstanding 8% bonds payable due August 1, 2007. Portugal had issued $500,000 face amount of the bonds on August 1, 2002, for $480,552 ( a 9% yield). Interest on the bonds is payable annually each August 1.

6		In Senegal Company's July 31, 2003, journal entry to record the acquisition of the bonds, Cash is credited in the amount of:
			A)	$93,660
			B)	$100,000
			C)	$101,660
			D)	Some other amount

On July 31, 2003, the end of a fiscal year, Senegal Company, the 99%-owned subsidiary of Portugal Corporation, acquired in the open market for $93,660 (a 10% yield) plus accrued interest, $100,000 face amount of Portugal's outstanding 8% bonds payable due August 1, 2007. Portugal had issued $500,000 face amount of the bonds on August 1, 2002, for $480,552 ( a 9% yield). Interest on the bonds is payable annually each August 1.

7		In the working paper elimination (in journal entry format) for Portugal Corporation and subsidiary on July 31, 2003, Discount on Intercompany Bonds Payable¾Portugal is credited in the amount of:
			A)	$3,240
			B)	$3,892
			C)	$16,198
			D)	$19,462
			E)	Some other amount

On July 31, 2003, the end of a fiscal year, Senegal Company, the 99%-owned subsidiary of Portugal Corporation, acquired in the open market for $93,660 (a 10% yield) plus accrued interest, $100,000 face amount of Portugal's outstanding 8% bonds payable due August 1, 2007. Portugal had issued $500,000 face amount of the bonds on August 1, 2002, for $480,552 ( a 9% yield). Interest on the bonds is payable annually each August 1.

8		In the working paper elimination (in journal entry format) for Portugal Corporation and subsidiary on July 31, 2003, the gain on Senegal's acquisition of Portugal's bonds is credited to:
			A)	Gain on Extinguishment of Bonds-Portugal
			B)	Retained Earnings-Senegal
			C)	Retained Earnings-Senegal and Minority Interest in Net Assets of Subsidiary
			D)	Retained Earnings-Portugal
9		If a parent company discounts at a bank a note receivable from a subsidiary, the subsidiary prepares a journal entry that includes:
			A)	A debit to Intercompany Interest Expense and a credit to Interest Payable
			B)	A debit to Interest Expense and a credit to Intercompany Interest Payable
			C)	A debit to Interest Expense and a credit to Interest Payable
			D)	A debit to Intercompany Interest Expense and a credit to Intercompany Interest Payable
10		The elimination of intercompany interest revenue and expense on intercompany loans usually is accomplished by:
			A)	A working paper elimination
			B)	Placing the intercompany items in adjacent columns on the same line of the working paper for consolidated financial statements
			C)	A journal entry in the accounting records of the parent company
			D)	None of the foregoing methods