ADVANCED FINANCIAL ACCOUNTING
PRACTICE TEST 2026 QUESTIONS AND
ANSWERS GRADED A+
◉Sub sold Parent land in a prior year for a Gain of $40,000. The land
is still held by Parent. Parent owns 80% of Sub. The elimination
entry necessary for this intercompany transaction on the current
year's working paper includes: Answer: A Debit to Retained
Earnings for $40,000
(Explanation: Yr. of Sale Entry
(I) DR Gain on Sale of Land 40,000
CR Land 40,000
When land is sold in an Upstream Sale(Sub to Parent) in a prior yr.,
you eliminate the Gain in subsequent yrs. from Beginning Retained
Earnings of the Sub. Although the Gain was eliminated on the prior
yr.'s working paper, it remained on Sub's books and was closed to
Retained Earnings in the yr. of the sale.)
◉On a worksheet prepared to consolidate the financial statements
of a parent and subsidiary, elimination entries made to remove
intercompany Gains on downstream sales of land sold in prior years
will affect which account? Answer: Investment in Subsidiary
,(Explanation: Yr. of Sale Elimination Entry
(I) DR Gain on Sale of Land 20,000
CR Land 20,000
Yr. 2 on, as long as Parent still has Land
(I) DR Inv. in Sub 20,000
CR Land 20,000
When Downstream Sales occur, in subsequent yrs. you ADD the
unconfirmed Gain to the Investment Account.
◉Parent sold Sub land in a prior year for a gain of $40,000. The land
is still held by Sub. Parent owns 80% of Sub. The elimination entry
necessary for this intercompany transaction on the current year's
worksheet includes: Answer: A Debit to the Investment Account for
$40,000
(Explanation:
Yr. of Sale Entry (I)
DR Gain on Sale of Land 40,000
CR Land 40,000
To reduce the Land to the Original Cost
Subsequent Yr, Entry (I)
,DR Inv. in Sub 40,000
CR Land 40,000
To reduce the Land to Original Acquis. Cost
◉A parent provides services to a subsidiary, at a markup of 20%
over cost. The subsidiary reports the cost of the services as part of
its operating expenses. What elimination entry is necessary with
respect to this intercompany transaction? Answer: )I) Entry
DR Sales Revenue
CR Operating Expenses
For the price the subsidiary PAID for the services
(Explanation: If the services were proveded on Account the
eliminating entries would include:
(I-1)
DR Accounts Payable (Total $ of Service with Markup)
CR Accounts Recievable (Total $ of Service with Markup)
To eliminate intercompany payables/recievables
(I-2)
DR Service Revenue (Total $ of Service with Markup)
CR Operating Expenses (Total $ of Service with Markup)
To eliminate the intercompany revenues/expenses
, ◉Parent sold Sub some land at a gain in 2012. Sub still holds the
land. On a work paper prepared to consolidate the financial
statements of a parent and a subsidiary in 2014, the elimination
entry connected with this land includes a debit to: Answer:
Investment in S, because the gain reduced the Investment account in
2012
◉Which statement is false concerning the elimination entries
required for intercompany sales of land from a subsidiary to its
parent? Answer: If Sub sold the land to Parent in 2013 and Parent
sells the land to outsiders in 2014, no elimination entries are
required in 2014
◉Parent owns 75% of the outstanding voting stock of Sub. During
2013, Parent sold inventory priced at $1,000,000 to Sub, and
Parent's profits on these sales amounted to $50,000.
All inventory sold by Parent to Sub was sold by Sub to outside
customers during 2013.
Here is what Parent and Sub report for total sales, cost of goods sold,
and ending inventory at December 31, 2013 (for total sales between
Parent and Sub and to outside customers).
Parent's books-Inventory $300,000
Sales revenue $5,000,000
COGS $4,000,000
Sub's Books-Inventory $150,000
PRACTICE TEST 2026 QUESTIONS AND
ANSWERS GRADED A+
◉Sub sold Parent land in a prior year for a Gain of $40,000. The land
is still held by Parent. Parent owns 80% of Sub. The elimination
entry necessary for this intercompany transaction on the current
year's working paper includes: Answer: A Debit to Retained
Earnings for $40,000
(Explanation: Yr. of Sale Entry
(I) DR Gain on Sale of Land 40,000
CR Land 40,000
When land is sold in an Upstream Sale(Sub to Parent) in a prior yr.,
you eliminate the Gain in subsequent yrs. from Beginning Retained
Earnings of the Sub. Although the Gain was eliminated on the prior
yr.'s working paper, it remained on Sub's books and was closed to
Retained Earnings in the yr. of the sale.)
◉On a worksheet prepared to consolidate the financial statements
of a parent and subsidiary, elimination entries made to remove
intercompany Gains on downstream sales of land sold in prior years
will affect which account? Answer: Investment in Subsidiary
,(Explanation: Yr. of Sale Elimination Entry
(I) DR Gain on Sale of Land 20,000
CR Land 20,000
Yr. 2 on, as long as Parent still has Land
(I) DR Inv. in Sub 20,000
CR Land 20,000
When Downstream Sales occur, in subsequent yrs. you ADD the
unconfirmed Gain to the Investment Account.
◉Parent sold Sub land in a prior year for a gain of $40,000. The land
is still held by Sub. Parent owns 80% of Sub. The elimination entry
necessary for this intercompany transaction on the current year's
worksheet includes: Answer: A Debit to the Investment Account for
$40,000
(Explanation:
Yr. of Sale Entry (I)
DR Gain on Sale of Land 40,000
CR Land 40,000
To reduce the Land to the Original Cost
Subsequent Yr, Entry (I)
,DR Inv. in Sub 40,000
CR Land 40,000
To reduce the Land to Original Acquis. Cost
◉A parent provides services to a subsidiary, at a markup of 20%
over cost. The subsidiary reports the cost of the services as part of
its operating expenses. What elimination entry is necessary with
respect to this intercompany transaction? Answer: )I) Entry
DR Sales Revenue
CR Operating Expenses
For the price the subsidiary PAID for the services
(Explanation: If the services were proveded on Account the
eliminating entries would include:
(I-1)
DR Accounts Payable (Total $ of Service with Markup)
CR Accounts Recievable (Total $ of Service with Markup)
To eliminate intercompany payables/recievables
(I-2)
DR Service Revenue (Total $ of Service with Markup)
CR Operating Expenses (Total $ of Service with Markup)
To eliminate the intercompany revenues/expenses
, ◉Parent sold Sub some land at a gain in 2012. Sub still holds the
land. On a work paper prepared to consolidate the financial
statements of a parent and a subsidiary in 2014, the elimination
entry connected with this land includes a debit to: Answer:
Investment in S, because the gain reduced the Investment account in
2012
◉Which statement is false concerning the elimination entries
required for intercompany sales of land from a subsidiary to its
parent? Answer: If Sub sold the land to Parent in 2013 and Parent
sells the land to outsiders in 2014, no elimination entries are
required in 2014
◉Parent owns 75% of the outstanding voting stock of Sub. During
2013, Parent sold inventory priced at $1,000,000 to Sub, and
Parent's profits on these sales amounted to $50,000.
All inventory sold by Parent to Sub was sold by Sub to outside
customers during 2013.
Here is what Parent and Sub report for total sales, cost of goods sold,
and ending inventory at December 31, 2013 (for total sales between
Parent and Sub and to outside customers).
Parent's books-Inventory $300,000
Sales revenue $5,000,000
COGS $4,000,000
Sub's Books-Inventory $150,000
