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Multiple Choice Quiz
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1
Red Inc. owns 80% of White Company's outstanding common stock. Red reports cost of goods sold in the current year of $425,000 while White Co. reports $260,000. During the current year, Red Inc. sells inventory costing $125,000 to White Co. for $187,500. 60% of these goods are not resold by White Company until the following year. What is consolidated cost of goods sold?
A)$685,000
B)$497,500
C)$460,000
D)$535,000
E)$910,000
2
Maust Inc. owns 80% of Light Co.'s common stock. On January 2 of the current year, Maust sold Light some equipment for $200,000. The equipment had a carrying amount of $180,000. Light is depreciating the acquired equipment over a twenty-year remaining useful life by the straight-line method. The net adjustments to calculate consolidated net income for the current year and the following year would be an increase (decrease) of:
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A)A.
B)B.
C)C.
D)D.
E)E.
3
Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31 of the current year which was the second year of owning Mitchell.

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Two years ago, Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1. The entire difference between the amount paid and the fair value of Mitchell's net assets is attributed to a previously unrecorded patent with a fair value of $112,500. The patent is being amortized over 20 years. During the first year, Mitchell sold Post inventory costing $60,000 for $70,000. 30% of this inventory was not sold to external parties until the following year. During the second year, Mitchell sold inventory costing $90,000 to Post for $115,000. Of this inventory, 25% remained unsold on December 31 of the second year.

What is the amount of consolidated sales for the second year?
A)$700,000
B)$815,000
C)$608,000
D)$585,000
E)$535,000
4
Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31 of the current year which was the second year of owning Mitchell.

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Two years ago, Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1. The entire difference between the amount paid and the fair value of Mitchell's net assets is attributed to a previously unrecorded patent with a fair value of $112,500. The patent is being amortized over 20 years. During the first year, Mitchell sold Post inventory costing $60,000 for $70,000. 30% of this inventory was not sold to external parties until the following year. During the second year, Mitchell sold inventory costing $90,000 to Post for $115,000. Of this inventory, 25% remained unsold on December 31 of the second year.

What is the amount of consolidated cost of goods sold for the second year?
A)$440,000
B)$331,250
C)$328,250
D)$321,750
E)$443,250
5
Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31 of the current year which was the second year of owning Mitchell.

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Two years ago, Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1. The entire difference between the amount paid and the fair value of Mitchell's net assets is attributed to a previously unrecorded patent with a fair value of $112,500. The patent is being amortized over 20 years. During the first year, Mitchell sold Post inventory costing $60,000 for $70,000. 30% of this inventory was not sold to external parties until the following year. During the second year, Mitchell sold inventory costing $90,000 to Post for $115,000. Of this inventory, 25% remained unsold on December 31 of the second year.

What is the consolidated inventory on December 31 of the second year?
A)$301,750
B)$246,750
C)$309,750
D)$293,750
E)$273,250
6
Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31 of the current year which was the second year of owning Mitchell.

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Two years ago, Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1. The entire difference between the amount paid and the fair value of Mitchell's net assets is attributed to a previously unrecorded patent with a fair value of $112,500. The patent is being amortized over 20 years. During the first year, Mitchell sold Post inventory costing $60,000 for $70,000. 30% of this inventory was not sold to external parties until the following year. During the second year, Mitchell sold inventory costing $90,000 to Post for $115,000. Of this inventory, 25% remained unsold on December 31 of the second year.

What is the amount of consolidated expenses for the second year?
A)$140,000
B)$134,375
C)$132,964
D)$90,000
E)$145,625
7
Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31 of the current year which was the second year of owning Mitchell.

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Two years ago, Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1. The entire difference between the amount paid and the fair value of Mitchell's net assets is attributed to a previously unrecorded patent with a fair value of $112,500. The patent is being amortized over 20 years. During the first year, Mitchell sold Post inventory costing $60,000 for $70,000. 30% of this inventory was not sold to external parties until the following year. During the second year, Mitchell sold inventory costing $90,000 to Post for $115,000. Of this inventory, 25% remained unsold on December 31 of the second year.

What is the noncontrolling interest's share of Mitchell Co.'s net income earned in the second year?
A)$2,000
B)$1,125
C)$225
D)$2,650
E)$750
8
On January 1 of the current year, Rogers Inc. sold equipment costing $1,400,000 with accumulated depreciation of $840,000 to Cooper Corp., a wholly owned subsidiary, for $750,000. Rogers had owned the equipment for six years and was depreciating the equipment using the straight-line method over ten years with no salvage value. Cooper will continue to use the straight-line method over the remaining four years of the equipment's economic life. In consolidated statements at December 31 of the current year, the cost and accumulated depreciation, respectively, should be.
A)$1,400,000 and $840,000
B)$1,400,000 and $1,027,500
C)$750,000 and $187,500
D)$1,400,000 and $980,000
E)$750,000 and $840,000
9
Three years ago, Ennis Inc. purchased land from its 70%-owned subsidiary, Jones Inc., for $250,000. The subsidiary originally paid $160,000 for the land several years earlier. In the current year, Ennis Inc. needed to raise some cash and sold the land to an unrelated third party for $230,000. What amount of gain or loss on the sale of the land should be reported in the consolidated income statement in the original year of the intercompany sale and three years later when the land was sold to an unrelated third party?
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A)A
B)B
C)C
D)D
E)E
10
Marco Towers Inc. owns 80% of Flatbush Condos Co. Five years ago on January 1, Marco Towers acquired equipment with a twenty-year life for $1,800,000. No salvage value was anticipated and the equipment was to be depreciated on the straight-line basis. Five years later on January 1, Marco Towers sold the equipment to Flatbush Condos for $1,500,000. At that time, the equipment had a remaining useful life of fifteen years, but still had no expected salvage value. In preparing financial statements for the current year when the sale was made to Flatbush, how does this transfer affect the calculation of consolidated net income?
A)Consolidated net income must be decreased by $140,000.
B)Consolidated net income must be decreased by $10,000.
C)Consolidated net income must be increased by $140,000.
D)Consolidated net income must be increased by $10,000.
E)Consolidated net income must be decreased by $150,000.
11
Entities can have both upstream and downstream transactions. How would these transfers affect the consolidation process?
A)Downstream have no effect because these transactions are made by the parent company.
B)Upstream transactions affect the computation of the Noncontrolling Interest in Subsidiary's Income.
C)Downstream transactions affect the computation of the Noncontrolling Interest in Subsidiary's Income.
D)No difference exists in the consolidation process for either downstream or upstream transactions.
E)Upstream and downstream transfers have no effect on the consolidation process.
12
B. Atman Co. owns 90% of R. Iddler Co. During the current year R. Iddler sells to B. Atman land with a book value of $80,000 and a fair value of $100,000. The selling price is $110,000. In its accounting records, R. Iddler will:
A)Record a $20,000 gain on the sale of land.
B)Record a $18,000 gain on the sale of land.
C)Record a $30,000 gain on the sale of land.
D)Defer the recognition of the gain until the land is sold to an unrelated party.
E)Not recognize a gain on the sale of land since it was made to a related part.
13
An intercompany transaction exists due to the sale of depreciable assets between affiliates. How does this transfer affect the financial statements?
A)The transfer price of the asset is reported on the consolidated balance sheet
B)Depreciation expense in the consolidated income statement is based on the transfer price of the selling affiliate.
C)The original cost is reported on the consolidated balance sheet.
D)Depreciation expense on the buying affiliate's income statement is based on the original cost.
E)The seller will not recognize any gain or loss from the sale of the depreciable asset.
14
On December 31 of the current year, ABC Corp sells $100,000 inventory to its 70% owned subsidiary Sun, Co. for $120,000. At the end of the year, all of the inventory is still on hand with Sun, Co. The consolidated working paper entry to eliminate the effect of this intercompany sale will include a debit to sales for:
A)$120,000
B)$84,000
C)$100,000
D)$14,000
E)0 because this is a downstream transaction.
15
How does the accounting treatment for downstream and upstream sales of inventory vary?
A)No difference exists and both are treated the same.
B)The gross profit on goods that the parent still owns is added to the subsidiary's income in calculating the noncontrolling interest's share of subsidiary's earnings.
C)For upstream transfers, the income from the subsidiary will decrease by the beginning inventory profits multiplied by the noncontrolling interest percentage.
D)For upstream profits, income from the subsidiary is reduced, and for downstream profits, income from the subsidiary is not affected, in calculating the noncontrolling interest's share of the subsidiary's earnings.
E)For downstream transfers, the income from subsidiary will increase by the beginning inventory profits multiplied by the noncontrolling interest percentage.





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