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Ch06_Test Bank Jeter Advanced Accounting 3rd Edition

Ch06_Test Bank Jeter Advanced Accounting 3rd Edition

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Chapter 6Elimination of Unrealized Profit on Intercompany Sales of Inventory
 Multiple Choice
1. Sales from one subsidiary to another are calleda. downstream sales.b. upstream sales.c. intersubsidiary sales.d. horizontal sales.2. Noncontrolling interest in consolidated income is never affected bya. upstream sales.b. downstream sales.c. horizontal sales.d. Noncontrolling interest is affected by all sales.3. Failure to eliminate intercompany sales would result in an overstatement of consolidateda. net income.b. gross profit.c. cost of sales.d. all of these.4.
Pratt Company owns 80% of Storey Company’s common stock. During 20
11, Storey sold $400,000of merchandise to Pratt. At December 31, 2011, one-fourth of the merchandise remained in Pr
att’s
inventory. In 2011, gross profit percentages were 25% for Pratt and 30% for Storey. The amount of unrealized intercompany profit that should be eliminated in the consolidated statements isa. $80,000.b. $24,000.c. $30,000.d. $25,000.5. The non
controlling interest’s share of the selling affiliate’s profit on intercompany sales is
considered to be realized undera. partial elimination.b. total elimination.c. 100% elimination.d. both total and 100% elimination.6. The workpaper entry in the year of sale to eliminate unrealized intercompany profit in endinginventory includes aa. credit to Ending Inventory (Cost of Sales).b. credit to Sales.c. debit to Ending Inventory (Cost of Sales).d. debit to Inventory - Balance Sheet.
 
Test Bank to accompany Jeter and Chaney Advanced Accounting 3
rd
Edition
6-27. Perez Company acquired an 80% interest in Seaman Company in 2010. In 2011 and 2012, Suttonreported net income of $400,000 and $480,000, respectively. During 2011, Seaman sold $80,000 of merchandise to Perez for a $20,000 profit. Perez sold the merchandise to outsiders during 2012 for$140
,000. For consolidation purposes, what is the noncontrolling interest’s share of S
eaman's 2011and 2012 net income?a. $90,000 and $96,000.b. $100,000 and $76,000.c. $84,000 and $92,000.d. $76,000 and $100,000.8. A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2010.Under the partial equity method, the workpaper entry in 2011 to recognize the intercompany profitin beginning inventory realized during 2011 includes a debit toa. Retained Earnings - P.b. Noncontrolling interest.c. Cost of Sales.d. both Retained Earnings - P and Noncontrolling Interest.9. The noncontrolling interest in consolidated income when the selling affiliate is an 80% ownedsubsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the
subsidiary’s reported net income
 a. plus unrealized profit in ending inventory less unrealized profit in beginning inventory.b. plus realized profit in ending inventory less realized profit in beginning inventory.c. less unrealized profit in ending inventory plus realized profit in beginning inventory.d. less realized profit in ending inventory plus realized profit in beginning inventory.10. In determining controlling interest in consolidated income in the consolidated financial statements,unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:a. not be eliminated.b. be eliminated in full.c.
 be eliminated to the extent of the parent company’s controlling in
terest in the subsidiary.d. be eliminated to the extent of the noncontrolling interest in the subsidiary.11. P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At theend of the current year, one-third of the merchandise
remains in S Company’s inventory. Applying
the lower-of- cost-or-market rule, S Company wrote this inventory down to $92,000. What amountof intercompany profit should be eliminated on the consolidated statements workpaper?a. $20,000.b. $18,000.c. $12,000.d. $10,800.12. The material sale of inventory items by a parent company to an affiliated company:a.
 
enters the consolidated revenue computation only if the transfer was the result of arm’s length
bargaining.b.
 
affects consolidated net income under a periodic inventory system but not under a perpetualinventory system.c.
 
does not result in consolidated income until the merchandise is sold to outside parties.d.
 
does not require a working paper adjustment if the merchandise was transferred at cost.
 
Chapter 6 Elimination of Unrealized Profit on Intercompany Sales of Inventory
6-313. A parent company regularly sells merchandise to its 80%-owned subsidiary. Which of thefollowing statements describes the computation of noncontrolling interest income?a.
 
the subsidiary’s net income times 20%.
 b.
 
(the subsidiary’s net income x 20%) + unrealized prof 
its in the beginning inventory
 – 
 unrealized profits in the ending inventory.c.
 
(the subsidiary’s net income + unrealized profits in the beginning inventory – 
unrealized profitsin the ending inventory) × 20%.d.
 
(the subsidiary’s net income + unrealized profits
in the ending inventory
 – 
unrealized profits inthe beginning inventory) × 20%.14. P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal tofair value. During 2011, P sold merchandise that cost $135,000 to S for $189,000. One-third of this
merchandise remained in S’
s inventory at December 31, 2011. S reported net income of $120,000
for 2011. P’s income from S for 2011
is:a.
 
$36,000.b.
 
$50,400.c.
 
$54,000.d.
 
$61,200.
Use the following information for Questions 15 & 16:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 2010, P soldmerchandise that cost $240,000 to S for $3
00,000. Half of this merchandise remained in S’s December 31,
2010 inventory. During 2011, P sold merchandise that cost $375,000 to S for $468,000. Forty percent of 
this merchandise inventory remained in S’s December 31, 20
11 inventory. Selected income statementinformation for the two affiliates for the year 2011 is as follows:P _ S _Sales Revenue $2,250,000 $1,125,000Cost of Goods Sold 1,800,000 937,500Gross profit $450,000 $187,50015. Consolidated sales revenue for P and Subsidiary for 2011 are:a.
 
$2,907,000.b.
 
$3,000,000.c.
 
$3,205,500.d.
 
$3,375,000.16. Consolidated cost of goods sold for P Company and Subsidiary for 2011 are:a.
 
$2,260,500.b.
 
$2,268,000.c.
 
$2,276,700.d.
 
$2,737,500.

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