AFAR 2 Summative EXAM Conso PDF

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AFAR2 FINALS SUMMATIVE 1 (CONSOLIDATED)THEORIES● 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 non-controlling interest for the second year should include the non-controlling inte...

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AFAR2 FINALS SUMMATIVE 1 (CONSOLIDATED) THEORIES ●

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 non-controlling interest for the second year should include the non-controlling interest’s share of gains Unrealized in the second year from upstream sales made in the second year. Unrealized in the second year from downstream sales in both years. Realized in the second year from upstream sales made in both years. Both realized and unrealized from upstream sales made in the second year.

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If a gain in an intercompany transaction is attributable to a partially owned subsidiary, working paper eliminations (in journal entry format) for accounting periods subsequent to the period of the intercompany transaction will include a debit to Non-Controlling interest in Net Assets of Subsidiary unless the gain arose from A sale of plant asset A sale of merchandise An acquisition of outstanding bonds in the open market A sale of intangible asset

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The working paper elimination (in journal entry format) for a second year of intercompany sales made at a mark-up over subsidiary cost by a partially owned subsidiary to the parent company includes: A debit to retained earnings - subsidiary A credit to noncontrolling interest in net assets of subsidiary A credit to cost of goods sold - subsidiary None of the choices

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If the subsidiary’s operating result is income, after adjustment for the amortization of excess over book value, the entry to record the income attributable to NCI in subsidiary’s books is A debit to income attributable to NCI A credit to income attributable to NCI A debit to NCI None of the choices

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In a downstream sale where Parent owns all of the subsidiary’s outstanding shares. The eliminating entry to adjust the ending inventory includes a credit to Cost of sales *** Retained earnings Non-controlling interest Inventory

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In an upstream sale where Parent owns all of the subsidiary’s outstanding shares. The eliminating entry to recognized the realized intercompany gross profit includes a credit toCost of sales Retained earnings Non-controlling interest Inventory

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

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In a downstream sale, to record prior year’s eliminating entries related to the realization of an intercompany gain on sale of equipment requires a debit to _____ Retained earnings Depreciation expense Accumulated depreciation Retained earnings and non-controlling interest

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Gain or loss resulting from an intercompany sale of equipment between a parent and as subsidiary is Recognized in the consolidated statements in the year of the sale. CCi,nsidered to be realized over the remaining useful life if the equipment is an adjustment to depreciation in the consolidated statements. Considered to be unrealized in the consolidated statement until the equipment is sold to a third party Amortized over a period of not less than 2 years and not greater than 40 years

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Under cost method, the investment in subsidiary account in the books of the acquirer is constant at all times, regardless of the operating results of the subsidiary, True False

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In the consolidated statement of CI, the NCI CI should be Subtracted to arrive at consolidated CI if the subsidiary had net income Added to arrive at consolidated net income if the subsidiary had a CI Subtracted to arrive at consolidated CI if the subsidiary had a net loss Subtracted to arrive at consolidated net loss if both the parent and the subsidiary had a net loss

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Parent sold land to its subsidiary for a gain in 20x4. The subsidiary sold the land externally for a gain in 20x7. Which of the following statements is not true? Only the subsidiary company will report a gain in 20x7 A gain will be reported on the consolidated income statement in 20x7 No gain will be reported on the 20x0 consolidated income statement Only the parent company will report a gain in 20x4

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Basketball Co. wholly owns Volleyball Co. During the year, Basketball purchased inventory from Volleyball. Volleyball has marked-up the goods at 20% above cost. How should the group compute for the consolidated sales? Sales of Basketball plus sales of Volleyball Sales of Basketball plus sales of Volleyball minus the intercompany sale Sales of Basketball plus sales of Volleyball plusthe intercompany sale Sales of Basketball plus sales of Volleyball minus the unrealized gross profit intercompany sale

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Perez, Inc. owns 80% of Senior, Inc. During 2012, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 2012. For 2012 consolidated financial statements, how should the summation of Perez and Senior income statement items be adjusted? Sales and cost of goods sold should be reduced by the intercompany sales. Sales and cost of goods sold should be reduced by 80% of the intercompany sales. Net income should be reduced by 80% of the gross profit or intercompany sales. No adjustment is necessary

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To record the amortization of the undervaluation of furniture and fixture includes a working paper debit entry to Depreciation expense Accumulated depreciation Furniture and fixtures Investment in subsidiary

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Dividend payment made by the parent will appear in which of the following statements? I - Parent’s separate financial statements II - Consolidated financial statements III - Subsidiary’s financial statements Select the correct response. I II II and III I and II

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The working paper entry to record the decrease in the retained earnings of the acquired entity since the date of acquisition of control includes a Credit to retained earnings Credit to noncontrolling interest Credit to investment subsidiary Debit retained earnings

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Under cost method of accounting for investment, which of the following accounts is increased due to dividends paid by a subsidiary? Consolidated retained earnings Parent’s separate retained earnings Non-controlling interest Subsidiary’s separate retained earnings

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In 20y6, Puzco resold for 70,000 inventory that it had acquired from its 100 50,000. Suzco’s cost was $36,000. In consolidation at the end of 20y6, which of the following accounts is debited on the worksheet? Intercompany Cost of Sales None of the choices Intercompany sales Inventory Noncontrolling interest

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Non-controlling interest in consolidated net income is always affected by

Upstream sales *** Downstream sales Both upstream and downstream sales Neither upstream nor downstream sales ●

Five years ago, an intercompany gain on sale was recorded for an equipment, which by that time had an estimated life of 15 years. If such sale is an upstream sale of equipment (wholly owned subsidiary), to recognized intercompany gain on sale for the past 5 years and the current year shall include the following entry, except Credit: Retained earnings Credit: Noncontrolling interest Debit: Accumulated depreciation Credit: Depreciation expense

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Basketball Co. wholly owns Volleyball Co. During the year, Basketball purchased inventory from Volleyball. Volleyball has marked-up the goods at 20% above cost. How should the group compute for the consolidated cost of sales? Cost of sales of Basketball plus cost of sales of Volleyball Cost of sales of Basketball plus cost of sales of Volleyball minus intercompany sales Cost of sales of Basketball plus cost of sales of Volleyball plus unrealized profit in ending inventory and minus realized profit in the beginning inventory Cost of sales of Basketball plus cost of sales of Volleyball plus unrealized profit in ending inventory and plus realized profit in the beginning inventory

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Under the equity method of accounting for investment, which of the following accounts is not affected by dividends paid by a subsidiary? Consolidated retained earnings Subsidiary’s separate retained earnings Non-controlling interest Investment in subsidiary

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If subsidiary’s net assets is overvalued at date of acquisition, its net income, compared to its net income for consolidated purposes, isI - overstated II - understated I only II only Neither I nor II Both I and II

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Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent under the Partial equity method Equity method Cost method Equity and partial equity methods

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In years subsequent to the upstream intercompany sale of non-depreciable assets which resulted to loss, the necessary consolidated workpaper entry under the cost method is to debit the Non-controlling interest and retained earnings - parent, and credit the non-depreciable asset Retained earnings account and credit the non-depreciable asset Non-depreciable asset, and credit the non-controlling interest and investment in subsidiary accounts Non-depreciable asset, and credit the non-controlling interest and retained earnings accounts

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In 20y5, Palco sold inventory costing 70,000 to its 100%-owned subsidiary, Salco, for 100,000. At 12/31/20y5, 33,000 of its inventory was reported in Salco’s balance sheet. In 20y6, Salco resold this inventory for 55,000. Which of the following accounts is eliminated in consolidated at 12/31/20y6 as a result of the above transactions? I - intercompany sales II - Intercompany cost of sales III - retained earnings Select the correct response I, II, and III Neither I, II, and III I only II only III only

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In all cases, if an acquisition resulted to a goodwill, the total consolidated assets under full goodwill is higher than under partial goodwill. True False

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The investment in subsidiary account is not debited in which working paper entries? Adjustment of undervaluation of subsidiary’s net assets Elimination the dividend received under equity method Recognition of bargain purchase gain on acquisition Elimination of subsidiaries deficit

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Williard Corporation regularly sells inventory items to its subsidiary, Petty, Inc. If unrealized profits in Petty’s 20x1 year-end inventory exceed the unrealized profits in its 20x2 year-end inventory, 20x2 combined, Cost of sales will be less than consolidated cost of sales in 20x2 Gross profit will be greater than consolidated gross profit in 20x2 Sales will be less than consolidated sales in 20x2 Cost of sales will be greater than consolidated cost of sales in 20x2

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When preparing consolidated financial statement workpapers, unrealized intercompany gains as a result of equipment of inventory sales by affiliates are allocated proportionately by percent of ownership between parent and NCI only when the selling affiliate is The parent and the subsidiary is less than wholly owned A wholly owned subsidiary The subsidiary and the subsidiary is less than wholly owned The parent of a wholly owned subsidiary

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Which of the following accounts would not require reconciliation or adjustment to a reciprocal balance prior to beginning the consolidated process? Intercompany receivables Intercompany interest income Intercompany sales Intercompany management fee income

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A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and non-controlling interest balances in the parent company's consolidated balance sheet? No effect on either retained earnings or non-controlling interest No effect on retained earnings and a decrease in non-controlling interest Decreases in both retained earnings and non-controlling interest A decrease in retained earnings and no effect in non-controlling interest

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The method of accounting for investment in subsidiary that is appropriate for the acquisition method of combination is The cost method The market value method The equity method The pooling method

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Under the cost method of accounting for investment, depreciation and amortization of the allocated excess between the fair values and book values of a purchased subsidiary's identifiable net assets is debited to the: Subsidiary's expense accounts Parent company expense accounts Subsidiary's retained earnings account Parent company's investment account

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Strickland Company sells inventory to its parent Carter Company, at a profit during 20x4. With regard to the intercompany sales, which of the following choices would be a debit entry in the consolidated worksheet for 20x4? Retained Earnings*** Cost of goods sold Inventory Investment in Strickland Company Additional Paid-In Capital

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In 20y5, an intercompany inventory transfer above cost occurred. In 20y6, all this inventory was resold to an outside party. Which of the following accounts would require adjustment or elimination in consolidation at 12/31/20y6? Cost of Sales Intercompany Cost of Sales Intercompany Sales Ending Inventory

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The book value of equipment presented in the consolidated financial statement should be the sum of the book values of equipment in the separate financial statement of both parent and subsidiaries plus any unamortized excess of fair value over book value on such equipment on acquisition date. True False

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Basketball Co. wholly owns Volleyball Co. During the year, Basketball purchased inventory from Volleyball. Volleyball has marked-up the goods at 20% above cost. How should the group compute for the consolidated ending inventory? Ending inventory of Basketball plus ending inventory of Volleyball minus unrealized profit in ending inventory Ending inventory of Basketball plus ending inventory of Volleyball minus intercompany sales plus unrealized profit in ending inventory Ending inventory of Basketball plus ending inventory of Volleyball minus intercompany sales minus unrealized profit in ending inventory and plus realized profit in beginning inventory Ending inventory of Basketball plus ending inventory of Volleyball minus intercompany sales plus unrealized profit in ending inventory and minus realized profit in beginning inventory

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The working paper entry to eliminate a treasury shares of the acquired entity includes a Credit to investment in subsidiary Credit to treasury shares Debit to treasury shares Credit to noncontrolling interest

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Which of the following accounts need not be eliminated in consolidation? Intercompany Sales Intercompany Cost of Sales Intercompany Interest Expense Long-term Intercompany Receivable None of the choices

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To recognized the intercompany loss on sale of machinery for the current reporting period, through depreciation, the eliminating entry should include a credit to Depreciation expense Accumulated depreciation Retained earnings Non-controlling interest

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The working paper entry to record the share of non-controlling interest in the subsidiary's net profit is a Debit to noncontrolling interest Credit to noncontrolling interest Credit to income attributable to noncontrolling interest Any of the choices

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The consolidated inventory presented in the financial statement should be reduced by any realized mark up on intercompany sale of inventory. True False ***

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The method that increase or decrease the investment in subsidiary stock for the results of subsidiary’s operation is The equity method The cost method The purchase method The pooling of interest method

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Under the cost method, the investment account is reduced when there is a Liquidating dividend The subsidiary declares a cash dividend The subsidiary incurs a net loss None of these

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In an upstream sale where Parent owns all of the subsidiary’s outstanding shares. The eliminating entry to recognized the realized intercompany gross profit includes a debit toCost of sales Retained earnings Non-controlling interest Inventory

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An investor adjusts the investment account for the amortization of any difference between cost and book value under the Cost method Complete equity method Partial equity method Complete and partial equity method

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Five years ago, an intercompany gain on sale was recorded for an equipment, which by that time had an estimated life of 15 years. If such sale is an upstream sale of equipment (partially owned subsidiary), the recognized intercompany gain on sale for the past 5 years and the current year shall be adjusted in the current year’s eliminating entries without a credit to Retained earnings Noncontrolling interest Accumulated depreciation Depreciation expense

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Under the equity method, if the investment income recorded by the parent is net of amortization of excess, including goodwill impairment, the parent’s net income in its separate income statement is always the same with the net income attributable to controlling interest. True False

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Intercompany accounts that are to have reciprocal balances but are not currently in agreement are adjusted Before the consolidation process After the consolidation process During the consolidation process None of the choices

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Inventory sales from a parent to one of its subsidiaries are referred to as Downstream sales Upstream sales Sidestream sales Horizontal sales

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Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company's Recorded net income Recorded net income plus the subsidiary’s recorded net income Recorded net income minus the subsidiary’s recorded net income Income from independent operations plus subsidiary’s income resulting from transactions with outside parties

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The consolidated comprehensive income under full goodwill and partial goodwill are always not the same. True False

PROBLEMS ABAKADA INCORPORATED AND EGAHA COMPANY The income statement of Abakada Incorporated and Egaha Company are shown below:

Based on the income statement above, answer the following six (6) independent questions: ●

Abakada Incorporated sold inventories to Egaha Company for P160,000 with 20% gross profit. Egaha sold 80% of the goods acquired from Abakada during the year. Last year, Egaha also purchased the same quantity and type of goods from Abakada and sold 25% of it during the current year. Abakada owns 70% of Egaha’s outstanding shares. If Egaha declared a dividend of Php10,000, how much is the consolidated net income? Php233,000 Php220,600 Php226,000 Php219,000

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Abakada Incorporated sold inventories to Egaha Company for P160,000 with 20% gross profit. Egaha sold 80% of the goods acquired from Abakada during the year. Last year, Egaha also purchased the same quantity and type of goods from Abakada and sold 25% of it during the current year. Abakada owns 70% of Egaha’s outstanding shares. How much is the consolidated gross profit?

Php941,600 Php941,120 Php1,001,600 Php940,000 ●

Abakada Incorporated sold inventories to Egaha Company for P160,000 with 20% gross profit. Egaha sold 80% of the goods acquired from Abakada during the year. Last year, Egaha also purchased the same quantity and type of goods from Abakada and s...