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Chapter 6 Test Bank Intercompany Profit Transactions - Plant Assets
Chapter 6 Test Bank Intercompany Profit Transactions - Plant Assets
a. No effect. No effect.
b. No effect. Decreased.
c. Decreased. No effect.
d. Increased. Decreased.
LO1
5. What was the intercompany sale impact on the consolidated
financial statements for the year ended December 31, 2005?
a. No effect. No effect.
b. No effect. Increased.
c. Decreased. Decreased.
d. Decreased. No effect.
©2009 Pearson Education, Inc. publishing as Prentice Hall
6-2
LO1
6. On January 2, 2005 Kakapo Company sold a truck with book value
of $45,000 to Flightless Corporation, its completely owned
subsidiary, for $60,000. The truck had a remaining useful life
of three years with zero salvage value. Both firms use the
straight-line depreciation method, and assume no salvage value.
If Kakapo failed to make year-end equity adjustments, Kakapo’s
investment in Flightless at December 31, 2005 was
LO1, 2 & 4
Use the following information to answer questions 7 through 10.
Debit Credit
Cash 50,000
Accumulated depreciation 18,000
Truck 53,000
Gain on Sale of Truck 15,000
LO1
7. In preparing the consolidated financial statements for 2005,
the elimination entry for depreciation expense was a
a. $121,000.
b. $125,000.
c. $131,000.
d. $143,000.
LO4
10. The minority interest income for 2005 was
a. $18,000.
b. $22,000.
c. $23,000.
d. $27,000.
LO2
11. Ground Parrot Company completely owns Heathlands Inc. On
January 2, 2005 Ground Parrot sold Heathlands machinery at its
book value of $30,000. Ground Parrot had the machinery two
years before selling it and used a five-year straight-line
depreciation method, with zero salvage value. Heathlands will
use a three-year straight-line method. In the 2005 consolidated
income statement, the depreciation expense
a. required no adjustment.
b. decreased by $4,000.
c. increased by $4,000
d. increased by $30,000.
LO2
12. In reference to the downstream or upstream sale of
depreciable assets, which of the following statements is
correct?
Falcon Rodent
Equipment $ 750,000 $ 300,000
Less: Accumulated depreciation ( 200,000) ( 50,000)
Equipment-net $ 550,000 $ 250,000
LO2
14. Peregrine Corporation acquired a 90% interest in Cliff
Corporation in 2004 at a time when Cliff’s book values and fair
values were equal to one another. On January 1, 2005, Cliff
sold a truck with a $45,000 book value to Peregrine for
$90,000. Peregrine is depreciating the truck over 10 years
using the straight-line method. Separate incomes for Peregrine
and Cliff for 2005 were as follows:
Peregrine Cliff
Sales $ 1,800,000 $ 1,050,000
Gain on sale of truck 45,000
Cost of Goods Sold ( 750,000) ( 285,000)
Depreciation expense ( 450,000) ( 135,000)
Other expenses ( 180,000) ( 450,000)
Separate incomes $ 420,000 $ 225,000
a. $161,550.
b. $162,000.
c. $166,050.
d. $202,500.
Kestrel Reptile
Buildings $ 400,000 $ 250,000
Accumulated Depreciation - 120,000 75,000
Buildings
LO2
16. Pigeon Corporation purchased land from its 60%-owned
subsidiary, Seed Inc., in 2003 at a cost $30,000 greater than
Seed’s book value. In 2005, Pigeon sold the land to an outside
entity for $40,000 more than Pigeon’s book value. The 2005
consolidated income statement reported a gain on the sale of
land of
a. $40,000.
b. $42,000.
c. $58,000.
d. $70,000.
LO2
17. Pied Imperial-Pigeon Corporation acquired a 90% interest in
Offshore Corporation in 2003 when Offshore’ book values were
equivalent to fair values. Offshore sold equipment with a book
value of $80,000 to Pied Imperial-Pigeon for $130,000 on
January 1, 2005. Pied Imperial-Pigeon is fully depreciating the
equipment over a 4-year period by using the straight-line
method. Offshore’ reported net income for 2005 was $320,000.
Pied Imperial-Pigeon’s 2005 net income from Offshore was
a. $249,250.
b. $250,500.
c. $254,250.
d. $288,000.
a. $48,000.
b. $60,000.
c. $64,000.
d. $80,000.
LO4
19. On January 1, 2005 Rainforest Co. recorded a $30,000 profit on
the upstream sale of some equipment that had a remaining four-
year life under the straight-line depreciation method. The
effect of this transaction on the amount recorded in 2005 by
the parent company Wompoo as its investment income in the
Rainforest was
LO4
20. Swift Parrot Corporation acquired a 60% interest in Berries
Corp. on January 1, 2005, when Berries’s book values and fair
values were equivalent. On January 1, 2005, Berries sold a
building with a book value of $600,000 to Swift Parrot for
$700,000. The building had a remaining life of 10 years, no
salvage value, and was depreciated by the straight-line method.
Berries reported net income of $2,000,000 for 2005. What was
the noncontrolling interest for 2005?
a. $710,000.
b. $764,000.
c. $800,000.
d. $900,000.
Required:
Additional information:
Required:
On April 1, 2003, Dove sold land that cost $25,000 to Squab for
$40,000. Squab resold the land for $45,000 on December 1, 2005.
Required:
The first two columns in the working papers presented below summarize
income statement information from the separate company financial
statements of Dove and Squab for the year ended December 31, 2005.
Fill in the consolidated working paper columns to show how each of
the items from the separate company reports will appear in the
consolidated income statement.
Additional information:
Required:
Exercise 5
Required:
LO2
Exercise 6
Nightjar Branch
Sales Revenue $ 2,000,000 $ 1,200,000
Cost of sales ( 1,200,000 ) ( 800,000 )
Other expenses ( 400,000 ) ( 200,000 )
Gain on equipment 80,000
Income from Branch 180,000
Net income $ 660,000 $ 200,000
Additional information:
1. Nightjar acquired its 90% interest in Branch Inc. when the book
values were equal to the fair values.
Required:
LO2&3
Exercise 7
Income statements for Osprey and Branch for the year ended December
31, 2005 are summarized below:
Osprey Branch
Sales $ 450,000 $ 100,000
Gain on sale of land 10,000
Income from Branch 55,000
Cost of sales ( 220,000 ) ( 50,000 )
Depreciation expense ( 95,000 ) ( 32,000 )
Other expenses ( 37,000 ) ( 8,000 )
Net income $ 153,000 $ 20,000
Required:
Quail Savannah
Sales Revenue $ 800,000 $ 300,000
Gain on equipment 35,000
Gain on land 20,000
Cost of sales ( 400,000 ) ( 160,000 )
Other expenses ( 265,000 ) ( 60,000 )
Separate incomes $ 170,000 $ 100,000
Additional information:
1. Quail acquired its 80% interest in Savannah Corporation when the
book values were equal to the fair values.
Required:
After the books were closed in 2005, it was discovered that Cassowary
had not considered the unrealized gain from its intercompany purchase
of land in preparing the consolidated financial statements. The only
entry on Cassowary’s books was a debit to Land and a credit to Cash
in 2003 for $82,000, and, in 2005, a debit to Cash for $102,000 and
credits to Land for $82,000 and Gain on sale of land for $20,000.
Required:
2. Determine the correct amounts for Land in 2003, 2004, and 2005.
Machine 22,000
Gain on Sale of Machine 14,000
Depreciation Expense 2,000
Accumulated Depreciation 34,000
Required:
2. What amounts were reported for the Machine and the Accumulated
Depreciation in the consolidated balance sheet on December 31,
2005?
3. If Tool reported $60,000 of net income for 2005, what amount was
assigned to the non-controlling interest?
1 c
2 b
3 c
4 a
5 a
6 d
8 a ($53,000 - $50,000)
11 a
12 d
16 d
18 d
20 b
Exercise 1
©2009 Pearson Education, Inc. publishing as Prentice Hall
6-20
Requirement 1: Spiniflex Pigeon’s books
Exercise 2
Exercise 3
Exercise 4
Exercise 5
©2009 Pearson Education, Inc. publishing as Prentice Hall
6-23
2003 2004 2005
Barn Owl’s separate income 300,000 225,000 60,000
Cave’s net income 90,000 110,000 120,000
Tractor Adjustment 4,000 4,000 4,000
Land gain (40,000) 38,000
Equipment gain (16,000)
Depreciation Expense (2,000) (2,000) (2,000)
Minority Interest Expense (15,000) (33,000) (39,000)
Net Income 321,000 304,000 181,000
Sales:
$2,000,000 + 1,200,000 - 200,000 $ 3,000,000
Cost of Sales
$1,200,000 + 800,000 - 200,000 - 48,000 + 40,000 $ 1,792,000
Other expenses:
$400,000 + 200,000 - 20,000 $ 580,000
Minority income
Net income from Branch x 10%: ($200,000 x 10%) = $ 20,000
Requirement 1
The gain on the sale of the land in 2005 was equal to the sales price
minus the original cost of the land when it was first acquired by the
combined entity. In this case the gain was $150,000 - $90,000, or
$60,000.
Requirement 2
Requirement 3
Exercise 8
Sales $ 1,100,000
Gain on land ($20,000 + $25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Minority interest (see below) ( 20,000 )
Consolidated net income $ 245,000
Other expenses:
$265,000 + $60,000 - $5,000 piecemeal recognition of
gain on equipment $ 320,000
Minority income
Net income from Savannah x 20%: ($100,000 x 20%) = $ 20,000
Requirement 3
Final sales price outside the entity minus the original cost to the
combined entity equals $102,000 minus $72,000 = $30,000
Requirement 1
Requirement 2
Requirement 3