Test bank Advanced Accounting

A change from carrying securities at fair value to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires: - that the investor begins accruing income earned by the investee under the equity method at the date of acquisition of the new shares. A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I. at the date of constructive retirement II. over the remaining term of the bonds. - II A newly created subsidiary sold all of its inventory to its parent at a profit in its first year of existence. The parent, in turn, sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit. The parent had no other sales during the year. The amount that should be reported as cost of goods sold in this year's consolidated income statement should be:80 percent of the amount reported as intercompany sales by the subsidiary. 80 percent of the amount reported as cost of goods sold by the subsidiary. the amount reported as cost of goods sold by the parent minus unrealized profit in the ending inventory of the parent. - 80 percent of the amount reported as cost of goods sold by the subsidiary.