Terms in this set (21)

In 2014, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000. It had a
book value of $24,000. In the next year, Sidd sold the land for $41,000 to an unaffiliated firm.

1) Which of the following is correct?

A) No consolidation working paper entry is required for this transaction in 2014.
B) A consolidation working paper entry is required only if the subsidiary was less than 100%
owned in 2014.
C) A consolidation working paper entry is required each year that Sidd has the land.
D) A consolidated working paper entry was required only if the land was held for resale in 2014.
C
Objective: LO1
Easy

2) The 2014 unrealized gain from the intercompany sale

A) should be recognized in consolidation in 2014 by a working paper entry.
B) should be eliminated from consolidated net income by a working paper entry that credits land
for $14,000.
C) should be eliminated from consolidated net income by a working paper entry that debits land
for $14,000.
D) should be eliminated from consolidated net income by a working paper entry that credits gain
on sale of land for $14,000.
B
Objective: LO1
Easy
3) On January 1, 2014, Bigg Corporation sold equipment with a book value of $20,000 and a 10-
year remaining useful life to its wholly-owned subsidiary, Little Corporation, for $30,000. Both
Bigg and Little use the straight-line depreciation method, assuming no salvage value. On
December 31, 2014, the separate company financial statements held the following balances
associated with the equipment:

Bigg Little
Gain on sale of equipment $10,000
Depreciation expense $3,000
Equipment 30,000
Accumulated depreciation 3,000

A working paper entry to consolidate the financial statements of Bigg and Little on December
31, 2014 included a
A) debit to equipment for $10,000.
B) credit to gain on sale of equipment for $10,000.
C) debit to accumulated depreciation for $1,000.
D) credit to depreciation expense for $3,000.
C
Objective: LO2
Moderate

Use the following information to answer the question(s) below.

On December 31, 2014, Pinne Corporation sold equipment with a three-year remaining useful
life and a book value of $21,000 to its 70%-owned subsidiary, Sull Company, for a price of
$27,000. Pinne bought the equipment four years ago for $49,000. The salvage value is zero.
Straight-line depreciation is used by both companies.

4) An elimination entry at December 31, 2014 for the intercompany sale will include a
A) credit of $6,000 to Depreciation Expense.
B) credit of $6,000 to Accumulated Depreciation.
C) credit of $6,000 to Equipment.
D) credit of $6,000 to Gain on Sale of Equipment.
C
Objective: LO2
Moderate
5) After eliminating/adjusting entries are prepared, what was the intercompany sale impact on
the consolidated financial statements for the year ended December 31, 2014?
A) Consolidated Net Income Consolidated Net Assets
No effect No effect
B) Consolidated Net Income Consolidated Net Asset
No effect Increased
C) Consolidated Net Income Consolidated Net Asset
Decreased Decreased
D) Consolidated Net Income Consolidated Net Asset
Decreased No effect
A
Objective: LO2
Moderate
6) On January 2, 2014, Paogo Company sold a truck with book value of $15,000 to Sanall
Corporation, its wholly-owned subsidiary, for $20,000. The truck had a remaining useful life of
five years with zero salvage value. Both firms use the straight-line depreciation method. If Paogo
failed to make year-end adjustments/eliminations on the consolidated working papers in 2014,
consolidated depreciation expense for 2014 would be
A) $5,000 too high.
B) $5,000 too low.
C) $1,000 too low.
D) $1,000 too high.
D
Objective: LO2