chapter 4 consolidated financial statements and intercompany transactions multiple c 4314409

chapter 4 consolidated financial statements and intercompany transactions multiple c 4314409

Chapter 4:Consolidated Financial Statements and Intercompany Transactions

Multiple Choice

Multiple Choice – Theory

Topic: Intercompany Inventory Sales

LO:1

1.During 2015, MajorCompany sold merchandise to its 100%-owned subsidiary, Minor Company.During that year, all of the merchandise was resold to outside customers.  If no consolidation entries are made, which of the following will be incorrect in consolidated statements?

a.Inventory, net income

b.Inventory, sales, cost of goods sold

c.Sales, cost of goods sold

d.All accounts will be correct because the goods were quickly resold to customers.

Topic: Intercompany Sales of Depreciable Assets

LO: 3

2. If Cloggins Co. sold equipment with a six-year life at a gain of $12,000 to Prosey Enterprises, itssubsidiary, in the consolidated statements, the gain will:

a.Never be recognized

b. Be recognized over the six-year period

c.Be recognized immediately

d.Be recognized when the asset is resold to outsiders

Topic: Intercompany Sale of Land

LO: 2

3.  What is a purpose of the consolidation entry regarding the inter-company sale of land?

a. To make consolidated net income the same as it would have been had the sale not occurred

b. To make consolidated net income less than it would have been had the sale not occurred

c. To make consolidated net income greater that it would have been had the sale not occurred

d.  To adjust the Land account with no effect on consolidated net income

Topic: Intercompany Inventory Sales

LO: 1

4. If unrealized inter-company profits in ending inventory exceed unrealized inter-company profits in beginning inventory, what will be the effect of the consolidation entries to eliminate unrealized inter-company inventory profits?

a. Equity income will be increased

b.Consolidated Sales will be decreased

c. Consolidated ending inventory will be increased

d. Consolidated cost of goods sold will be increased

Topic: Intercompany Inventory Sales

LO: 1

5.  Whether inter-company inventory sales are upstream or downstream has no effect on consolidation procedures when:

a.A perpetual inventory system is used

b. The goods are immediately resold to outsiders

c.The subsidiary is 100% owned

d. The goods are sold at cost

Topic: Intercompany Sales of Depreciable Assets

LO: 3

6.  Roxanne, Inc.,sells a machine to GraniteCompany, its subsidiary at a $10,000 gain.  The machine was classified as property, plant and equipment on Roxanne's books and also will be classified as such on Granite's books. The consolidation entry(s) to eliminate the inter-company transaction at year-end will not include:

a. A debit to Gain on Sale of Equipment

b. Acredit to Gain on Sale of Equipment

c.  A debit to Equipment

d.  A credit to Depreciation Expense

Topic: Intercompany Sale of Land

LO: 2

7. In the case of an intercompany sale of land, a consolidation entry is prepared in the period or periods:

a.  Of the sale of the land only

b.  Of both the sale of the land and the following periods

c.  After the sale of the land only

d.  Neither the period of the sale nor the following periods

 

Topic: Intercompany Sale of Land

LO: 2

8. In the case of an intercompany sale of land, which of the following is not a true statement?

a.  A gain or loss on sale should not be recorded on the seller's books.

b.  In the consolidation worksheet, the Land account is reduced by the amount of a gain

c.  GAAP requires the deferral of any gain or loss.

d.  The gain or loss on sale will be realized when the land is re-sold to an outside entity.

Topic: Intercompany InventorySales

LO: 1

9.One of the effects of eliminating intercompany profit from ending inventory is to:

a.  Reduce cost of goods sold

b.  Increase cost of goods sold

c.  Reduce sales revenue

d.  Increase gross profit

Topic: Intercompany Sale of Land

LO: 2

10.  Intercompany gains on sale of land are deferred:

a.  Until the consolidated entity is sold

b.  Over the period that the land produces revenue

c.  In perpetuity

d.  Until the land is sold

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