CMPC 221 FINALS PART 1

MULITPLE CHOICE.
SELECT THE BEST ANSWER.

Sales from one subsidiary to another are called

Downstream sales
Horizontal sales
Inter subsidiary sales
Upstream sales

In situations where there are routine inventory sales between parent companies and
subsidiaries, when preparing the consolidation statements, which of the following line
item is indifferent to the sales being either upstream or downstream?
Consolidated gross profits
Consolidated net income
Non-controlling Interest expense
Consolidated retained earnings

The consolidation procedures for intercompany sales are similar for upstream and
downstreams sales
If the merchandise is immediately sold to outside parties
If the merchandise is transferred at cost
When the subsidiary is 100% owned.
Under a periodic inventory system but not under a perpetual inventory system

The material sale of inventory items by a parent company to an affiliated company

Does not result in consolidated income until the merchandise is sold to outside parties.
Enters the consolidated revenue computation only if the transfer was the result of arm’s length
bargaining
Affects consolidated net income under a periodic inventory system but not under a perpetual
inventory system.
Does not require a working paper adjustment if the merchandise was transferred at cost.
65,000 and 81,250 respectively
30,400 and 13,000 respectively
13,000 and 16,250 respectively
520,000 and 65,000 respectively

275,000
277,500
280,000
272,500
Scarlet Company owns 80% of Tamara Corp.’s common stock. During October 2019
Tamara sold merchandise to Scarlet for 125,000. At December 31, 2019, one-half of the
merchandise remained in Scarlet inventory. For 2019, gross profit percentages were
30% for Scarlet and 40% for Tamara. The amount of unrealized intercompany profit in
ending inventory at December 31, 2019 that should be eliminated in consolidation is:
25,000
20,000
50,000
18,750

Failure to eliminate intercompay sales would result in an overstatement of consolidated

All of the above
Net income
Gross profit
Cost of sales

The work paper in the year of sale to eliminate unrealized intercompany profit in
ending
Credit to Sales
Debit to Inventory – Balance Sheet
Credit to Ending Inventory (Cost of Sales)
Debit to Ending Inventory (Cost of Sales)

560,000
800,000
920,000
1,000,000
918,000
1,012,500
675,000
580,500

Non-controlling interest in consolidated income is never affected by

Non-controlling interest is affected by all sales
Sale of Parent to unaffiliated company
Upstream Sales
Downstream sales

A parent company regularly sells merchandise to its 80%-owned subsidiary. Which of

the following statements describes the computation of non-controlling interest
income?
The subsidiary’s net income times 20%
The subsidiary’s net income x 20%) + unrealized profits in the beginning inventory- unrealized
profits in the ending inventory
The subsidiary’s net income + unrealized profits in the beginning inventory – unrealized profits in
the ending inventory) x 20%
(The subsidiary’s net income + unrealized profits in the ending inventory – unrealized profits in the
beginning inventory) x 20%

The non-controlling interest in consolidated income when the selling affiliate is an 80%
owned subsidiary is calculated by multiplying the non-controlling minority delete
minority ownership percentage by the subsidiary’s reported net income.
Plus unrealized profit in ending inventory less unrealized profit in beginning inventory.
Plus realized profit in ending inventory less realized profit in beginning inventory
Less realized profit in ending inventory plus realized profit in beginning inventory.
Less unrealized profit in ending inventory plus realized profit in beginning inventory

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:
Be eliminated to the extent of the non-controlling interest in the subsidiary.
Be eliminated in full
Not be eliminated
Be eliminated to the extent of the parent company’s controlling interest in the subsidiar
LONG PROBLEM
Write your solution in good accounting form on any clean paper (better if you have a worksheet) and take a
photo or scan your paper then submit it as ONE PDF file. WRITE YOUR NAME FOR EVERY PROBLEM (Before the
company name) a deduction of 3 points will be given for those who will not follow. Do not forget to ENCIRCLE
your final answer.

ABC Corp. Acquired a 70% interest in GHI Corp on January 2, 2021 for P936,000 when
GHI’s net assets had a book value and fair value of P1,580,000. During 2021, ABC sold
inventory items that cost P1,560,000 to GHI for P2,080,000 and GHI’s inventory at
December 31, 2021 included 1/2 of the merchandise. GHI also sold to ABC an inventory
for P30,000 with a cost of P25,000, 70% were sold to unaffiliated customers. ABC Corp.
Reported separate income from its own operation of P1,170,000 and GHI reported a net
loss of P390,000. Compute for the consolidated net income.

518,500
Your answer

REQUIRED: COMPUTE NCI IN NET ASSET (ONLY)

6530000 / 6170000
 3073000
Your answer

745500
Your answer
 680600
Your answer

19,400
Your answer