Test Bank For Advanced Financial Accounting, 13th
Edition By Theodore Christensen, Complete Chapters 1 -
20, Verified Newest Version
A parent owns 90% of a subsidiary. The parent provides marketing services to the
subsidiary during 2014. The parent charged the subsidiary $1,000,000 for the
services. The services cost the parent $700,000. Which statement is TRUE concerning
the consolidation elimination entry or entries related to the intercompany services? -
ANSWER:Service revenue is reduced by $1,000,000 in elimination I.
(Explanation:
DR Service Revenue 1,000,000
CR Service Expense 1,000,000
To remove the transaction from both books)
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
CR COGS 1,000,000)
A parent sold land costing $1,000,000 to its subsidiary for $1,200,000 in 2012. The
subsidiary still holds the land at the end of 2014. On a working paper prepared to
consolidate the financial statements of the parent and subsidiary in 2014, the
eliminating entry connected with this land includes a credit to: - ANSWER:Land, to
restore the land to its original cost
(Explanation:
DR Gain on sale 200,000
CR Land 200,000
Which restores it to the original cost of 2,000,000)
Which statement is TRUE concerning the eliminating entries required for
intercompany sales of land from a subsidiary to its parent? - ANSWER:If the
subsidiary sold the land to its parent in 2012, and the land was sold to outsiders by
the parent in 2012, no eliminating entries are required in 2012
(Explanation: Confirmed Profits DO NOT Require Eliminating Entries. That said: If Sub
sold Land to Parent for $10,000, say with a $1,000 Gain, then the Parent sold Land to
Outside Party for $11,000 with a $1,000 Gain, At year end the consildated income
statement would show Land sold and any Gain or Loss would go on the Income
Statement.
Journal Entry Sub:
DR Cash 10,000
CR Gain 1,000
CR Land 9,000
Journal Entry Parent:
DR Cash 11,000
CR Gain 1,000
CR Land 10,000
Consolidated IncomeStatement
Other Gains/Losses:
Gain on Sale of Land 2,000)
Which statement is TRUE regarding intercompany sales of merchandise? -
ANSWER:If the subsidiary sells merchandise to the parent(upstream intercompany
Edition By Theodore Christensen, Complete Chapters 1 -
20, Verified Newest Version
A parent owns 90% of a subsidiary. The parent provides marketing services to the
subsidiary during 2014. The parent charged the subsidiary $1,000,000 for the
services. The services cost the parent $700,000. Which statement is TRUE concerning
the consolidation elimination entry or entries related to the intercompany services? -
ANSWER:Service revenue is reduced by $1,000,000 in elimination I.
(Explanation:
DR Service Revenue 1,000,000
CR Service Expense 1,000,000
To remove the transaction from both books)
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
CR COGS 1,000,000)
A parent sold land costing $1,000,000 to its subsidiary for $1,200,000 in 2012. The
subsidiary still holds the land at the end of 2014. On a working paper prepared to
consolidate the financial statements of the parent and subsidiary in 2014, the
eliminating entry connected with this land includes a credit to: - ANSWER:Land, to
restore the land to its original cost
(Explanation:
DR Gain on sale 200,000
CR Land 200,000
Which restores it to the original cost of 2,000,000)
Which statement is TRUE concerning the eliminating entries required for
intercompany sales of land from a subsidiary to its parent? - ANSWER:If the
subsidiary sold the land to its parent in 2012, and the land was sold to outsiders by
the parent in 2012, no eliminating entries are required in 2012
(Explanation: Confirmed Profits DO NOT Require Eliminating Entries. That said: If Sub
sold Land to Parent for $10,000, say with a $1,000 Gain, then the Parent sold Land to
Outside Party for $11,000 with a $1,000 Gain, At year end the consildated income
statement would show Land sold and any Gain or Loss would go on the Income
Statement.
Journal Entry Sub:
DR Cash 10,000
CR Gain 1,000
CR Land 9,000
Journal Entry Parent:
DR Cash 11,000
CR Gain 1,000
CR Land 10,000
Consolidated IncomeStatement
Other Gains/Losses:
Gain on Sale of Land 2,000)
Which statement is TRUE regarding intercompany sales of merchandise? -
ANSWER:If the subsidiary sells merchandise to the parent(upstream intercompany
