ADVANCED FINANCIAL ACCOUNTING
EXAM SCRIPT 2026 QUESTIONS WITH
SOLUTIONS GRADED A+
◉A 60% owned subsidiary provides services to its parent during
2015. Cost of services provided is $300,000. The subsidiary charged
the parent $750,000 for the services. Which statement is TRUE
concerning elimination entry (I) related to these intercompany
services? Answer: Eliminating entry( I) removes the Parent's
Service Expense and the Subsidiary's Service Revenue, both in the
amount of $750,000.
(Explanation:
DR Service Revenue 750,000
CR Service Expense 750,000
To remove transaction from both books)
◉A subsidiary sells merchandise to its parent at a markup of 30%
on cost. In 2014, the parent paid $1,040,000 for merchandise
received from the subsidiary. By year-end 2014, the parent has sold
$780,000 of the merchandise to outside customers for $850,000, but
still holds the other $260,000 in its ending inventory. Which
statement is TRUE concerning the information reported on the 2014
,consolidated financial statements? Answer: The consolidated
Ending Inventory balance should be $200,000.
(Explanation: 260,000/1.2=200,000-the amount that is shown on
consolidated statements until all inventory is sold to outside party)
◉On January 1, 2014, the parent sold new equipment for which it
paid $600,000 to the subsidiary for $1,000,000. The plant assets had
a remaining life of 10 years at that time, straight-line. The subsidiary
still has the equipment at year-end. On the consolidation working
paper, the net effect of eliminations (I) will be a Answer: Credit
Depreciation Expense for $40,000.
(Explanation: 400,000/10=40,000-
DR Acc. Dep. 40,000
CR Dep. Exp. 40,000)
◉A parent sells land costing $35,000 to a subsidiary in 2014 for
$55,000. The subsidiary sells the land in 2016 to a third party for
$85,000. On the consolidated income statement for 2016, the GAIN
on sale of land is: Answer: $50,000.
(Explanation:(SP) 85,000- (BV) 35,000=50,000 gain. 20,000
unconfirmed gain is now confirmed+ 30,000 confirmed gain)
,◉A parent loans $100,000 to its subsidiary during 2014, at an
annual interest rate of 4%. The subsidiary has not paid the interest
at year-end. On the consolidation working paper, eliminating entries
include all BUT which one of the following? Answer: Credit Interest
Payable $4,000.
(Explanation: 100,000x.04=4,000 Interest Expense
(I-1)
DR Loan Pay 100,000
CR Loan Rec. 100,000
(I-2)
DR Int. Pay. 4,000
CR Int. Rec. 4,000
(I-3)
DR Int. Rev. 4,000
CR Int. Exp. 4,000)
◉A parent sells land to its subsidiary for $25,000, and shows a loss
of $4,000. At what amount should the land be shown on the
consolidated balance sheet? Answer: $29,000
(Explanation: P $29,000-25,000=4,000 Loss on Sale, S $29,000-
25,000=4,000 Bargain Purchase; Consolidated Statement shows
, land is valued at $29,000 and the loss and gain offset each other,
leaving the fair value of the land left, $29,000.
◉A subsidiary sells merchandise to its parent at a markup of 25%
on cost. In 2014, the parent paid $750,000 for merchandise received
from the subsidiary. By year-end 2014, the parent has sold $500,000
of the merchandise to outside customers for $800,000, but still holds
the other $250,000 in its ending inventory. Which statement is
FALSE concerning the information reported on the 2014
consolidated financial statements? Answer: Consolidated Cost of
Goods Sold is $500,000
(Explanation: COGS 500,000/1.25=400,000-Is the correct amount
on the consolidated books)
◉A parent company sells merchandise to a subsidiary company
during 2015 at a price of $1,000,000. The subsidiary company sells
all the merchandise to outside customers during 2015 for
$1,250,000. The parent always sells to the subsidiary at a markup of
25% on cost. Which statement is TRUE concerning the required
consolidation eliminating entries related to these transactions?
Answer: The eliminating entries will include a reduction in sales
revenue to remove intercompany sales.
(Explanation:
DR Sales 1,000,000
EXAM SCRIPT 2026 QUESTIONS WITH
SOLUTIONS GRADED A+
◉A 60% owned subsidiary provides services to its parent during
2015. Cost of services provided is $300,000. The subsidiary charged
the parent $750,000 for the services. Which statement is TRUE
concerning elimination entry (I) related to these intercompany
services? Answer: Eliminating entry( I) removes the Parent's
Service Expense and the Subsidiary's Service Revenue, both in the
amount of $750,000.
(Explanation:
DR Service Revenue 750,000
CR Service Expense 750,000
To remove transaction from both books)
◉A subsidiary sells merchandise to its parent at a markup of 30%
on cost. In 2014, the parent paid $1,040,000 for merchandise
received from the subsidiary. By year-end 2014, the parent has sold
$780,000 of the merchandise to outside customers for $850,000, but
still holds the other $260,000 in its ending inventory. Which
statement is TRUE concerning the information reported on the 2014
,consolidated financial statements? Answer: The consolidated
Ending Inventory balance should be $200,000.
(Explanation: 260,000/1.2=200,000-the amount that is shown on
consolidated statements until all inventory is sold to outside party)
◉On January 1, 2014, the parent sold new equipment for which it
paid $600,000 to the subsidiary for $1,000,000. The plant assets had
a remaining life of 10 years at that time, straight-line. The subsidiary
still has the equipment at year-end. On the consolidation working
paper, the net effect of eliminations (I) will be a Answer: Credit
Depreciation Expense for $40,000.
(Explanation: 400,000/10=40,000-
DR Acc. Dep. 40,000
CR Dep. Exp. 40,000)
◉A parent sells land costing $35,000 to a subsidiary in 2014 for
$55,000. The subsidiary sells the land in 2016 to a third party for
$85,000. On the consolidated income statement for 2016, the GAIN
on sale of land is: Answer: $50,000.
(Explanation:(SP) 85,000- (BV) 35,000=50,000 gain. 20,000
unconfirmed gain is now confirmed+ 30,000 confirmed gain)
,◉A parent loans $100,000 to its subsidiary during 2014, at an
annual interest rate of 4%. The subsidiary has not paid the interest
at year-end. On the consolidation working paper, eliminating entries
include all BUT which one of the following? Answer: Credit Interest
Payable $4,000.
(Explanation: 100,000x.04=4,000 Interest Expense
(I-1)
DR Loan Pay 100,000
CR Loan Rec. 100,000
(I-2)
DR Int. Pay. 4,000
CR Int. Rec. 4,000
(I-3)
DR Int. Rev. 4,000
CR Int. Exp. 4,000)
◉A parent sells land to its subsidiary for $25,000, and shows a loss
of $4,000. At what amount should the land be shown on the
consolidated balance sheet? Answer: $29,000
(Explanation: P $29,000-25,000=4,000 Loss on Sale, S $29,000-
25,000=4,000 Bargain Purchase; Consolidated Statement shows
, land is valued at $29,000 and the loss and gain offset each other,
leaving the fair value of the land left, $29,000.
◉A subsidiary sells merchandise to its parent at a markup of 25%
on cost. In 2014, the parent paid $750,000 for merchandise received
from the subsidiary. By year-end 2014, the parent has sold $500,000
of the merchandise to outside customers for $800,000, but still holds
the other $250,000 in its ending inventory. Which statement is
FALSE concerning the information reported on the 2014
consolidated financial statements? Answer: Consolidated Cost of
Goods Sold is $500,000
(Explanation: COGS 500,000/1.25=400,000-Is the correct amount
on the consolidated books)
◉A parent company sells merchandise to a subsidiary company
during 2015 at a price of $1,000,000. The subsidiary company sells
all the merchandise to outside customers during 2015 for
$1,250,000. The parent always sells to the subsidiary at a markup of
25% on cost. Which statement is TRUE concerning the required
consolidation eliminating entries related to these transactions?
Answer: The eliminating entries will include a reduction in sales
revenue to remove intercompany sales.
(Explanation:
DR Sales 1,000,000
