Chapter 5 Consolida Consolidated Financial Statements (Part ted Financial Statements (Part 2) PROBLEM 1: MULTIPLE CHOICE

2) PROBLEM 1: MULTIPLE CHOICE - THEORY 1. A 6. B 2. C 7. B 3. A 8. B 4. A 9. C 5. B 10. A PROBLEM 2: FOR CLASSROOM DISCUSSION 1. S

OR CLASSROOM DISCUSSION 1. Solutions: Requirement (a): Sales of Parent 1,000,000 Sales of Subsidiary 700,000 Less: Intercompany sale
y 700,000 Less: Intercompany sales during the year (38,000 + 40,000) (78,000) Consolidated sales 1,622,000 Requirement (b): The unrea
,000 Requirement (b): The unrealized profits in ending inventory are computed as uted as follows: follows: Downstream Upstream Total
ws: Downstream Upstream Total Sale price of intercompany sale 38,000 Cost of intercompany intercompany sale (20,000) (20,000) Profi
mpany sale (20,000) (20,000) Profit from intercompany sale 18,000 8,000a Multiply by: Unsold portion as of yr.- end (9.5/38) 3/4 Unrealiz
s of yr.- end (9.5/38) 3/4 Unrealized gross profit 4,500 6,00 0 10,500 a (40,000 x 20%) = 8,000 Cost of sales of Parent 400,000 Cost of s
sales of Parent 400,000 Cost of sales of Subsidiary 350,000 Less: Intercompany sales during the yr. (38,000 + 40,000) (78,000 ) Add: Unre
000 + 40,000) (78,000 ) Add: Unrealized profit in ending inventory inventory 10,500 1