Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus

Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost.
During 20X8, Venus sold inventory to Mars that it had purchased for $25,000. Mars sold all of
this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined
financial statements for 20X8, Earth's bookkeeper disregarded the common ownership of Mars
and Venus.

1. Based on the information given above, what amount should be eliminated from cost of goods
sold in the combined income statement for 20X8?

A. $31,250
B. $25,000
C. $56,892
D. $6,250

Award: 4.44 out of 4.44 points

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2. Based on the information given above, by what amount was unadjusted revenue overstated in

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the combined income statement for 20X8?

o.
A. $25,000
B. $56,892 rs e
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C. $31,250
D. $6,250
o

Award: 4.44 out of 4.44 points

aC s
vi y re

On January 1, 20X8, Parent Company acquired 90 percent ownership of Subsidiary Corporation,

at underlying book value. The fair value of the noncontrolling interest at the date of acquisition
was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 20X8,
Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the entire inventory to
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an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the
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inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8.

3. Based on the information given above, what amount of sales will be reported in the 20X8
is

consolidated income statement?

Th

A. $62,000
B. $120,000
C. $90,000
D. $58,000
sh

Award: 4.44 out of 4.44 points

4. Based on the information given above, what amount of cost of goods sold will be reported in
the 20X8 consolidated income statement?

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 A. $62,000
B. $120,000
C. $90,000
D. $58,000

Award: 4.44 out of 4.44 points

5. Based on the information given above, what amount of consolidated net income will be
assigned to the controlling shareholders for 20X8?

A. $58,000
B. $59,000
C. $55,000
D. $52,200

Award: 4.48 out of 4.48 points

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6. Which of the following are examples of intercompany balances and transactions that must be

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eliminated in preparing consolidated financial statements?

o.
I. Security holdings
II. Interest and dividends rs e
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III. Sales and purchases

A. I, II
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B. I, III
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C. I, II, III
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D. II

Award: 4.44 out of 4.44 points

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7. When there are intercompany sales of inventory during the year and a three-part consolidation
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worksheet is prepared, consolidation entries related to the intercompany sales:

I. Always are needed.

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II. Are not needed if the entire inventory is resold to unrelated parties prior to the end of the year.
Th

A. I
B. II
C. Both I and II
D. Either I or II
sh

Award: 4.44 out of 4.44 points

8. A newly created subsidiary sold all of its inventory to its parent at a profit in its first year of
existence. The parent, in turn, sold all but 20 percent of the inventory to unaffiliated companies,

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 recognizing a profit. The parent had no other sales during the year. The amount that should be
reported as cost of goods sold in this year's consolidated income statement should be:

A. 80 percent of the amount reported as intercompany sales by the subsidiary.

B. 80 percent of the amount reported as cost of goods sold by the subsidiary.
C. the amount reported as cost of goods sold by the parent minus unrealized profit in the
ending inventory of the parent.
D. 80 percent of the amount reported as cost of goods sold by the parent.

Award: 4.44 out of 4.44 points

9. The consolidation treatment of profits on inventory transfers that occurred before the business
combination depends on whether:

I. the companies were independent at that time.

II. the sale transaction was the result of arm's-length bargaining.

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A. I

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B. II
C. Both I and II

o.
D. Neither I nor II
Award: 4.44 out of 4.44 pointsrs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

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