ch07

Student:

1. Blue Company owns 70 percent of Black Company's outstanding common stock. On December 31,
20X8, Black sold equipment to Blue at a price in excess of Black's carrying amount, but less than
its original cost. On a consolidated balance sheet at December 31, 20X8, the carrying amount of the
equipment should be reported at:
A. Blue's original cost.
B. Black's original cost.
C. Blue's original cost less Black's recorded gain.
D. Blue's original cost less 70 percent of Black's recorded gain.
2. A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets
during the past two years. The amount of income assigned to the noncontrolling interest for the second
year should include the noncontrolling interest's share of gains:
A. unrealized in the second year from upstream sales made in the second year.
B. realized in the second year from downstream sales made in both years.
C. realized in the second year from upstream sales made in both years.
D. both realized and unrealized from upstream sales made in the second year.
3. Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This
purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8,
S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for
$145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent
has control of the following companies:

Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, at what amount should the land be reported in the consolidated
balance sheet as of December 31, 20X8?
A. $145,000
B. $220,000
C. $197,000
D. $160,000
4. Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This
purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8,
S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for
$145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent
has control of the following companies:

Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, what amount of gain or loss on sale of land should be reported in the
consolidated income statement for 20X8?
A. $60,000
B. $0
C. $75,000
D. $23,000
5. Parent Corporation purchased land from S1 Corporation for $220,000 on December 26, 20X8. This
purchase followed a series of transactions between P-controlled subsidiaries. On February 15, 20X8,
S3 Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to S2 Company for
$145,000 on October 19, 20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent
has control of the following companies:

Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, what should be the amount of income assigned to the controlling
shareholders in the consolidated income statement for 20X8?
A. $369,400
B. $405,000
C. $465,000
D. $60,000
6. Big Corporation receives management consulting services from its 92 percent owned subsidiary,
Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed
Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other
associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in
20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of consolidated net income should be reported in
20X8?
A. $3,262,000
B. $4,050,000
C. $3,254,100
D. $3,122,000
7. Big Corporation receives management consulting services from its 92 percent owned subsidiary,
Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed
Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other
associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in
20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of income should be assigned to the noncontrolling
shareholders in the consolidated income statement for 20X8?
A. $47,700
B. $44,400
C. $55,600
D. $60,000
8. Big Corporation receives management consulting services from its 92 percent owned subsidiary,
Small Inc. During 20X7, Big paid Small $125,432 for its services. For the year 20X8, Small billed
Big $140,000 for such services and collected all but $7,900 by year-end. Small's labor cost and other
associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in
20X8. Big reported $2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of receivable/payable should be eliminated in the 20X8
consolidated financial statements?
A. $125,432
B. $7,900
C. $5,560
D. $140,000
9. A wholly owned subsidiary sold land to its parent during the year at a gain. The parent continues to hold
the land at the end of the year. The amount to be reported as consolidated net income for the year should
equal:
A. the parent's separate operating income, plus the subsidiary's net income.
B. the parent's separate operating income, plus the subsidiary's net income, minus the intercompany gain.
C. the parent's separate operating income, plus the subsidiary's net income, plus the intercompany gain.
D. the parent's net income, plus the subsidiary's net income, minus the intercompany gain.
10. Phobos Company holds 80 percent of Deimos Company's voting shares. During the preparation of
consolidated financial statements for 20X9, the following eliminating entry was made:

Which of the following statements is correct?

A. Phobos Company purchased land from Deimos Company during 20X9.
B. Phobos Company purchased land from Deimos Company before January 1, 20X9.
C. Deimos Company purchased land from Phobos Company during 20X9.
D. Deimos Company purchased land from Phobos Company before January 1, 20X9.
11. Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net
income:
I. in the year of the downstream sale.
II. over the period of time the subsidiary uses the land.
III. in the year the subsidiary sells the land to an unrelated party.
A. I
B. II
C. III
D. I or II
12. ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to
its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
Based on the preceding information, what will be the worksheet eliminating entry to remove the effects of
the intercompany sale of land in preparing the consolidated financial statements for 20X8?

A. Option A
B. Option B
C. Option C
D. Option D
13. ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to
its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
Based on the preceding information, what will be the worksheet eliminating entry to remove the effects of
the intercompany sale of land in preparing the consolidated financial statements for 20X9?

A. Option A
B. Option B
C. Option C
D. Option D
14. ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to
its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ's voting shares.
Which worksheet eliminating entry will be made on December 31, 20X9, if XYZ Corporation had
initially purchased the land for $50,000 and then sold it to ABC on July 15, 20X8, for $70,000?

A. Option A
B. Option B
C. Option C
D. Option D
15. A parent sold land to its partially owned subsidiary during the year at a loss. The subsidiary continues to
hold the land at the end of the year. The amount to be reported as consolidated net income for the year
should equal:
A. the parent's separate operating income, plus the intercompany loss.
B. the parent's separate operating income, plus the intercompany loss, plus the subsidiary's net income.
C. the parent's separate operating income, minus the intercompany loss.
D. the parent's separate operating income, minus the intercompany loss, plus the subsidiary's net income.
16. Parent Company owns 70% of Son Company's outstanding stock. During 20X1 Son Company sold land
to Parent Company for a gain of $25,000. Parent company held the land all of 20X1. The gain on the sale
to Parent should be:
A. recorded on Son's books as a gain of $25,000 and then eliminated during the consolidation process.
B. deferred by Son until Parent sells the land to an outside party.
C. recorded on Son's books as a gain of $17,500 and eliminated during the consolidation process.
D. recorded on Parent's book as a gain of $17,500 and eliminated during the consolidation process.
17. Using the fully adjusted equity method, an intercompany gain on an upstream sale of land is:
A.recognized by the parent and the deferral is shared between the controlling and noncontrolling
stockholders of the subsidiary.
B. recognized by the subsidiary and the deferral is shared between the controlling and noncontrolling
stockholders of the subsidiary.
C. deferred by the subsidiary until the land is sold to an entity outside the consolidated group.
D. recognized by the subsidiary and the deferral is completely allocated to the controlling stockholders of
the subsidiary.
18. Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to
Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's
original eight-year estimated total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment's residual value is considered negligible.
Based on the information provided, in the preparation of the 20X8 consolidated financial statements,
building will be in the eliminating entries.
A. debited for $33,000
B. debited for $36,000
C. credited for $36,000
D. debited for $3,000
19. Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to
Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's
original eight-year estimated total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment's residual value is considered negligible.
Based on the information provided, the gain on sale of the building eliminated in the consolidated
financial statements for 20X8 is:
A. $8,250.
B. $10,500.
C. $6,000.
D. $11,250.
20. Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to
Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's
original eight-year estimated total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment's residual value is considered negligible.
Based on the information provided, while preparing the 20X8 consolidated income statement,
depreciation expense will be:
A. debited for $750 in the eliminating entries.
B. credited for $750 in the eliminating entries.
C. credited for $1,500 in the eliminating entries.
D. debited for $1,500 in the eliminating entries.
21. Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to
Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's
original eight-year estimated total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment's residual value is considered negligible.
Based on the information provided, in the preparation of the 20X9 consolidated income statement,
depreciation expense will be:
A. debited for $750 in the eliminating entries.
B. credited for $750 the eliminating entries.
C. credited for $1500 in the eliminating entries.
D. debited for $1500 in the eliminating entries.
22. On January 1, 20X9, Light Corporation sold equipment for $400,000 to Star Corporation, its wholly
owned subsidiary. Light had paid $900,000 for this equipment, which had accumulated depreciation of
$170,000. Light estimated a $50,000 salvage value and depreciated the tractor using the straight-line
method over 10 years, a policy that Star continued. In Light's December 31, 20X9, consolidated balance
sheet, this tractor should be included in fixed-asset cost and accumulated depreciation as:

A. Option A
B. Option B
C. Option C
D. Option D
23. Note: This is a Kaplan CPA Review Question
On January 1, 20X1, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary.
Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a
$100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy
which Saxe continued. In Poe's December 31, 20X1, consolidated balance sheet, this machine should be
included in cost and accumulated depreciation as:

A. Option A
B. Option B
C. Option C
D. Option D
24. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January
1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had
purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and
no salvage value. Both companies depreciate equipments on a straight-line basis.
Based on the preceding information, in the preparation of the 20X8 consolidated financial statements,
equipment will be:
A. debited for $1,000.
B. debited for $10,000.
C. credited for $15,000.
D. debited for $25,000.
25. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January
1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had
purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and
no salvage value. Both companies depreciate equipments on a straight-line basis.
Based on the preceding information, the gain on sale of the equipment recorded by Mortar for 20X8
is:
A. $150,000.
B. $65,000.
C. $110,000.
D. $40,000.
26. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January
1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had
purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and
no salvage value. Both companies depreciate equipments on a straight-line basis.
Based on the preceding information, in the preparation of the 20X9 consolidated financial statements,
equipment will be:
A. debited for $1,000.
B. debited for $10,000.
C. credited for $15,000.
D. debited for $25,000.
27. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January
1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had
purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and
no salvage value. Both companies depreciate equipments on a straight-line basis.
Based on the preceding information, in the preparation of the 20X9 consolidated income statement,
depreciation expense will be:
A. debited for $25,000 in the eliminating entries.
B. credited for $15,000 in the eliminating entries.
C. debited for $15,000 in the eliminating entries.
D. credited for $25,000 in the eliminating entries.
28. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January
1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had
purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and
no salvage value. Both companies depreciate equipments on a straight-line basis.
Based on the preceding information, in the preparation of elimination entries related to the equipment
transfer for the 20X9 consolidated financial statements, the net effect on accumulated depreciation will
be:
A. a decrease of $160,000.
B. an increase of $160,000.
C. an increase of $135,000.
D. a decrease of $135,000.
29. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,
20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased
on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage
value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of the 20X8 consolidated financial statements,
equipment will be:
A. debited for $50,000.
B. debited for $40,000.
C. credited for $70,000.
D. debited for $25,000.
30. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,
20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased
on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage
value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, the gain on sale of equipment recorded by Mortar for 20X8 is:
A. $70,000.
B. $65,000.
C. $50,000.
D. $40,000.
31. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,
20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased
on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage
value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of elimination entries related to the equipment
transfer for the 20X8 consolidated financial statements, net effect on accumulated depreciation will
be:
A. a decrease of $50,000.
B. an increase of $110,000.
C. an increase of $120,000.
D. a decrease of $160,000.
32. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,
20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased
on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage
value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of the 20X9 consolidated income statement,
depreciation expense will be:
A. Debited for $40,000 in the eliminating entries.
B. Credited for $10,000 in the eliminating entries.
C. Debited for $10,000 in the eliminating entries.
D. Credited for $40,000 in the eliminating entries.
33. Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,
20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased
on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage
value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of elimination entries related to the equipment
transfer for the 20X9 consolidated financial statements, net effect on accumulated depreciation will
be:
A. a decrease of $110,000.
B. an increase of $110,000.
C. an increase of $100,000.
D. a decrease of $100,000.
34. On January 1, 20X7, Servant Company purchased a machine with an expected economic life of five
years. On January 1, 20X9, Servant sold the machine to Master Corporation and recorded the following
entry:

Master Corporation holds 75 percent of Servant's voting shares. Servant reported net income of $50,000,
and Master reported income from its own operations of $100,000 for 20X9. There is no change in the
estimated economic life of the equipment as a result of the intercorporate transfer.
Based on the preceding information, in the preparation of the 20X9 consolidated income statement,
depreciation expense will be:
A. Debited for $1,000 in the eliminating entries.
B. Credited for $1,000 in the eliminating entries.
C. Debited for $15,000 in the eliminating entries.
D. Credited for $15,000 in the eliminating entries.
35. On January 1, 20X7, Servant Company purchased a machine with an expected economic life of five
years. On January 1, 20X9, Servant sold the machine to Master Corporation and recorded the following
entry:

Master Corporation holds 75 percent of Servant's voting shares. Servant reported net income of $50,000,
and Master reported income from its own operations of $100,000 for 20X9. There is no change in the
estimated economic life of the equipment as a result of the intercorporate transfer.
Based on the preceding information, in the preparation of the 20X9 consolidated balance sheet, machine
will be:
A. debited for $1,000.
B. debited for $15,000.
C. credited for $45,000.
D. debited for $25,000.
36. On January 1, 20X7, Servant Company purchased a machine with an expected economic life of five
years. On January 1, 20X9, Servant sold the machine to Master Corporation and recorded the following
entry:

Master Corporation holds 75 percent of Servant's voting shares. Servant reported net income of $50,000,
and Master reported income from its own operations of $100,000 for 20X9. There is no change in the
estimated economic life of the equipment as a result of the intercorporate transfer.
Based on the preceding information, income assigned to the noncontrolling interest in the 20X9
consolidated income statement will be:
A. $12,000.
B. $14,000.
C. $12,500.
D. $48,000.
37. On January 1, 20X7, Servant Company purchased a machine with an expected economic life of five
years. On January 1, 20X9, Servant sold the machine to Master Corporation and recorded the following
entry:

Master Corporation holds 75 percent of Servant's voting shares. Servant reported net income of $50,000,
and Master reported income from its own operations of $100,000 for 20X9. There is no change in the
estimated economic life of the equipment as a result of the intercorporate transfer.
Based on the preceding information, consolidated net income for 20X9 will be:
A. $150,000.
B. $100,000.
C. $148,000.
D. $130,000.
38. Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3,
Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line
depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black
for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9,
respectively.
Based on the preceding information, the amount to be reported as consolidated net income for 20X8 will
be:
A. $190,000.
B. $170,000.
C. $175,000.
D. $150,000.
39. Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3,
Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line
depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black
for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9,
respectively.
Based on the preceding information, the amount of income assigned to the controlling shareholders in the
consolidated income statement for 20X8 will be:
A. $190,000.
B. $170,000.
C. $175,000.
D. $150,000.
40. Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3,
Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line
depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black
for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9,
respectively.
Based on the preceding information, the amount to be reported as consolidated net income for 20X9 will
be:
A. $207,000.
B. $202,000.
C. $212,000.
D. $190,000.
41. Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3,
Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line
depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black
for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9,
respectively.
Based on the preceding information, the amount of income assigned to the controlling shareholders in the
consolidated income statement for 20X9 will be:
A. $207,000.
B. $202,000.
C. $212,000.
D. $190,000.
42. Peter Architectural Services owns 100 percent of Smith Manufacturing. During the course of 20X8 Peter
provides $100,000 of architectural services associated with Smith's new manufacturing facility, which
will open January 4, 20X9, and has a 5 year useful life. Explain the impact providing this service has on
Peter Architectural Services' 20X8 and 20X9 consolidated financial statements.

43. PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percent owned subsidiary, on
January 1, 20X7. The cost of the land was $75,000, when it was purchased in 20X6. In 20X9, Seven Star
sells the land to Hot Properties Inc., an unrelated entity, for $120,000. How is the land reported in the
consolidated financial statements for 20X7, 20X8 and 20X9?
44. Fred Corporation owns 75 percent of Winner Company's voting shares, acquired on March 21, 20X5, at
book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book
value of Winner Company.

On January 1, 20X4, Fred paid $150,000 for equipment with a 10-year expected total economic life.
The equipment was depreciated on a straight-line basis with no residual value. Winner purchased the
equipment from Fred on December 31, 20X6, for $140,000. Winner sold land it had purchased for
$75,000 on February 18, 20X4, to Fred for $60,000 on October 10, 20X7.
Required: Prepare the elimination entries for 20X8 related to the sale of depreciable assets and land if
Fred uses the fully adjusted equity method to account for its investment in Winner.
45. Pie Company acquired 75 percent of Strawberry Company's stock at the underlying book value on
January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of
the book value of Strawberry Company. Strawberry Company reported shares outstanding of $350,000
and retained earnings of $100,000. During 20X8, Strawberry Company reported net income of $60,000
and paid dividends of $3,000. In 20X9, Strawberry Company reported net income of $90,000 and paid
dividends of $15,000. The following transactions occurred between Pie Company and Strawberry
Company in 20X8 and 20X9:
Strawberry Co. sold equipment to Pie Co. for a $42,000 gain on December 31, 20X8. Strawberry Co. had
originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,
20X8. At the time of the purchase, Pie Co. estimated that the equipment still had a seven-year remaining
useful life.
Pie Co. sold land costing $90,000 to Strawberry Co. on June 28, 20X9, for $110,000.
Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pie Co.
uses the fully adjusted equity method to account for its investment in Strawberry Company.

46. Big Company acquired 75 percent of Little Company's stock at underlying book value on January 1,
20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value
of Little Company. Little Company reported shares outstanding of $350,000 and retained earnings of
$100,000. During 20X8, Little Company reported net income of $60,000 and paid dividends of $3,000.
In 20X9, Little Company reported net income of $90,000 and paid dividends of $15,000. The following
transactions occurred between Big Company and Little Company in 20X8 and 20X9:
Little Co. sold equipment to Big Co. for a $42,000 gain on December 31, 20X8. Little Co. had originally
purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At
the time of the purchase, Big Co. estimated that the equipment still had a seven-year remaining useful
life.
Big sold land costing $90,000 to Old Company on June 28, 20X9, for $110,000.
Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Big Co.
uses the modified equity method to account for its investment in Old Company.
47. Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,
20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value
of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of
$100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000.
In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The following
transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9:
Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8. Snoopy Co. had
originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December
31, 20X8. At the time of the purchase, Peanut Co. estimated that the equipment still had a seven-year
remaining useful life.
Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for $110,000.
Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Peanut
Co. uses the cost method to account for its investment in Snoopy Company.
 ch07 Key
1. C

2. C

3. D

4. B

5. A

6. A

7. C

8. B

9. B

10. D

11. C

12. A

13. A

14. B

15. B

16. A

17. B

18. D

19. A

20. B

21. C

22. A

23. A

24. B

25. A

26. B

27. D

28. C

29. A

30. A

31. B

32. B

33. C

34. B

35. D

36. A
37. C

38. A

39. C

40. B

41. D

Beginning in 2009 the intercompany profit would be realized over a 5 year period. In each of the years, depreciation expense is decreased and
consolidated net income is increased; as income to the controlling interests.
42. Peter has provided a service to the subsidiary Smith. During 2008 the cost of the architectural services will be capitalized by Smith as part of
the cost of the manufacturing facility. The profit earned on the consulting services must be eliminated in 2008 against the cost of the building. In
this manner consolidated net income is not overstated.

43. PeopleMag cannot report a gain on the sale of land for 2008 or 2009 in the consolidated financial statements. The land must be reported on
the consolidated balance sheet at its original cost of $75,000. The intercompany gain is unrealized and is eliminated. In 2010, the entire gain of
$45,000 ($120,000 - $75,000) is realized and recognized when the land is sold to an outside party.

44.
45.
46.
47.
 ch07 Summary
Category # of Questions
AACSB: Analytic 44
AACSB: Communication 2
AACSB: Reflective Thinking 1
AICPA FN: Decision Making 3
AICPA FN: Measurement 38
AICPA FN: Reporting 6
Blooms: Apply 6
Blooms: Remember 3
Blooms: Understand 38
Christensen - Chapter 07 47
Difficulty: 1 Easy 4
Difficulty: 2 Medium 35
Difficulty: 3 Hard 8
Learning Objective: 07-01 Understand and explain concepts associated with transfers of long-term assets and services. 9
Learning Objective: 07-02 Prepare equity- 4
method journal entries and elimination entries for the consolidation of a subsidiary following an intercompany land transfer.
Learning Objective: 07-03 Prepare equity- 5
method journal entries and elimination entries for the consolidation of a subsidiary following a downstream land transfer.
Learning Objective: 07-04 Prepare equity- 3
method journal entries and elimination entries for the consolidation of a subsidiary following an upstream land transfer.
Learning Objective: 07-05 Prepare equity- 17
method journal entries and elimination entries for the consolidation of a subsidiary following a downstream depreciable asset trans
fer.
Learning Objective: 07-06 Prepare equity- 9
method journal entries and elimination entries for the consolidation of a subsidiary following an upstream depreciable asset transfe
r.
Section: Appendix 7A 2
Topic: Disposition of land 1
Topic: Downstream asset Second Year 6
Topic: Downstream depreciable asset Second Year 1
Topic: Downstream Land Second Year 2
Topic: Downstream sale of depreciable assets 10
Topic: Downstream Sale of Land 3
Topic: Downstream Sale of Land - Cost Method 1
Topic: Downstream Sale of Land - Modified Equity Method 1
Topic: Intercompany Long-Term Asset Transfers 5
Topic: Intercompany transfers of services 4
Topic: Overview of the Profit Elimination Process 3
Topic: Upstream asset Second Year 2
Topic: Upstream depreciable asset Second Year 1
Topic: Upstream depreciable asset Second Year - Cost Method 1
Topic: Upstream depreciable asset Second Year - Modified Equity Method 1
Topic: Upstream Land Second Year 3
Topic: Upstream sale of depreciable assets 6