QUIZ 2020, questions and answers PDF

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On January 1, 20x4, Darter Industries acquired an 80% interest in Thermal Company to insure a steady supply of Thermal’s inventory that Darter uses in its own manufacturing businesses. Thermal sold 100% of its output to Darter during 20x4 and 20x5 at a markup of 120% of Thermal’s cost. Darter had P9...

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QUIZ 17 1. On January 1, 20x4, Darter Industries acquired an 80% interest in Thermal Company to insure a steady supply of Thermal’s inventory that Darter uses in its own manufacturing businesses. Thermal sold 100% of its output to Darter during 20x4 and 20x5 at a markup of 120% of Thermal’s cost. Darter had P9,600 of these items remaining in its January 1, 20x5 inventory and no items on December 31, 20x5. If Darter neglected to eliminate unrealized profits from all intercompany sales from Thermal, consolidated net income for 20x5 was (indicate whether overstated/understated/no effect) 2. KK Corporation owns 80 percent of LL Corporation’s common stock. During October, LL sold merchandise to KK for P100.000. At December 31, 50 percent of this merchandise remains in KK’s inventory. Gross profit percentages were 30 percent for KK and 40 percent for LL. The amount of unrealized intercompany profit in ending inventory at December 31 that should eliminated in the consolidation process is Use the following information for Questions 3 and 4: Pot Co. holds 90% of the common stock of Skillet Co. During 20x4, Pot reported sales of P1,120,000 and cost of goods sold of P840,000. For this same period, Skillet had sales of P420,000 and cost of goods sold of P252,000. Also during 20x4, Pot sold merchandise to Skillet for P140,000. The subsidiary still possesses 40% of this inventory at the end of 20x4. Pot had established the transfer price based on its normal markup. 3. What are consolidated sales and cost of goods sold? 4. Assuming that the transfers were from Skillet Co. to Pot Co., what are consolidated sales and cost of goods sold? Use the following information for questions 5 and 6: Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp Corporation. In 20x4, Swamp sold merchandise that cost P80,000 to Grebe for P100,000. Half of this merchandise remained in Grebe’s December 31, 20x4 inventory. During 20x5, Swamp sold merchandise that cost P160,000 to Grebe for P200,000. P62,500 of the 20x5 merchandise inventory remained in Grebe’s December 31, 20x5 inventory. Selected income statement information for the two affiliates for the year 20x5 was as follows: Grebe Swamp Sales P500,000 P400,000 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . 400,000 320,000 ... Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . P100,000 P 80,000 .... 5. Consolidated cost of goods sold for Grebe and Subsidiary for 20x5 were 6. What amount of unrealized profit did Grebe Company have at the end of 20x4? Use the following information for questions 7 and 8: 7. TT Company holds 90 percent of BB Company’s common stock. In the current year, TT reports sales of P800,000 and cost of goods sold of P600,000. For this same period, BB has sales of P300,000 and cost of goods sold of P180,000. During the current year, TT sold merchandise to BB for P100,000. The subsidiary still possesses 40 percent of this inventory at the current year-end. TT had established the transfer price based on its normal markup. What are the consolidated sales and cost of goods sold? 8. Use the same information as in problem 7 except assume that the transfers were from BB Company to TT Company. What are the consolidated sales and cost of goods sold? Use the following information for questions 9 and 10: P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 20x5, P sold merchandise that cost P240,000 to S for P300,000. Half of this merchandise remained in S’s December 31, 20x4 inventory. During 20x5, P sold merchandise that cost P375,000 to S for P468,000. Forty percent of this merchandise inventory remained in S’s December 31, 20x5 inventory. Selected income statement information for the two affiliates for the year 20x5 is as follows:

P Sales P 2,250,000 Revenue . . . . . . . . . . . . . . . . . . . . . Cost of Goods Sold . . . . . . . . . . . . . . . 1,800,000 . Gross profit . . . . . . . . . . . . . . . . . . . . . P

S P 1,250,000 937,500 P

QUIZ 17 ...

450,000

187,500

9. Consolidated sales revenue for P and Subsidiary for 20x5 are: 10 Consolidated cost of goods sold for P Company and Subsidiary for 20x5 are:

Use the following information for questions 11 and 12: P Company owns an 80% interest in S Company. During 20x4, S sells merchandise to P for P200,000 at a profit of P40,000. On December 31, 20x4, 50% of this merchandise is included in P’s inventory. Income statements for P and S are summarized below: P S Sales Revenue . . . . . . . . . . . . . . . . . . .P 1,200,000 P 600,000 . Cost of Goods Sold . . . . . . . . . . . . . . . . (600,000) (400,000) Operating Expenses . . . . . . . . . . . . . . . (300,000) (80,000) . Net Income (20x4) . . . . . . . . . . . . . . . . P 300,000 P 120,000 .. 11. Controlling interest in consolidated net income for 20x4 is: 12. Non-controlling interest in income for 20x4 is: Use the following information for Questions 13 & 14: P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. merchandise that cost P240,000 to S for P300,000. Half of this merchandise remained 31, 20x3 inventory. During 20x4, P sold merchandise that cost P375,000 to S for percent of this merchandise inventory remained in S’s December 31, 20x4 inventories. statement information for the two affiliates for the year 20x4 is as follows: P __ S____ Sales Revenue.........................................P2,250,000 P1,200,000 Cost of Goods Sold.................................1,800,000 _1,000,000 Gross profit................................................P 450,000 P 200,000

In 20x3, P sold in S’s December P468,000. Forty Selected income

13. Consolidated sales revenue for P and Subsidiary for 20x4 are: 14. Consolidated cost of goods sold for P Company and Subsidiary for 20x4 are: Use the following information for Questions 15 & 16: P Company owns an 80% interest in S Company. During 20x4, S sells merchandise to P for P150,000 at a profit of P30,000. On December 31, 20x4, 50% of this merchandise is included in P’s inventory. Income statements for P and S are summarized below: P __ S __ Sales P900,000 P450,000 Cost of Sales (450,000) (300,000) Operating Expenses (225,000) ( 60,000) Net Income (20x4) P225,000 P 90,000 15. Controlling interest in consolidated net income for 20x4 is: 16. Non-controlling interest in income for 20x4 is: Use the following information for Questions 17 & 18: 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 20x4, Venus sold inventory to Mars that it had purchased for P25,000. Mars sold all of this merchandise to unrelated customers for P56,892 during 20x4. In preparing combined financial statements for 20x4, Earth's bookkeeper disregarded the common ownership of Mars and Venus. 17.

What amount should be eliminated from cost of goods sold in the combined income statement for 20x4? 18. What amount was unadjusted revenue overstated in the combined income statement for 20x4? Use the following information for questions 19 to 21: Blue Company purchased 60 percent ownership of Kelly Corporation in 20x3. On May 10,20x4, Kelly purchased inventory from Blue for P 60,000. Kelly sold all of the inventory to an unaffiliated company for P86,000 on November 10,20x4. Blue produced the inventory sold to Kelly for P47,000. The companies had no other transaction during 20x4.

QUIZ 17 19. What amount of sales will be reported in the 20x4 consolidated income statement? 20. What amount of cost of goods sold will be reported in the 20x4 consolidated income statement? 21. What amount of consolidated net income will be assigned to the controlling shareholders for 20x4?

Use the following information for questions 22 to 24: Amber Corporation holds 80 percent of the stock of Movie Production Inc. During 20x4, Amber purchased an inventory of snack bar items for P40,000 and resold P30,000 to Movie Productions for P48,000. Movie Productions Inc. reported sales of P67,000 in 20x4 and had inventory of P16,000 on December 31, 20x4. The companies held no beginning inventory and had no other transactions in 20x4. 22. What amount of cost of goods sold will be reported in the 20x4 consolidated income statement? 23. What amount of net income will be reported in the 20x4 consolidated income statement? 24. What amount of income will be assigned to the non-controlling interest in the 20x4 consolidated net income statement? 25.

Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of inventory to Gibson. The sales, which include a markup over cost of 25%, were P420,000 in 20x3 and P500,000 in 20x4. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was P912,000 during 20x4. What was the non-controlling interest's share of Sparis' net income for 20x4?

26.

Prince Corp. owned 80% of Kile Corp.'s common stock. During October 20x4, Kile sold merchandise to Prince for P140,000. At December 31, 20x4, 50% of this merchandise remained in Prince's inventory. For 20x4, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intercompany profit in ending inventory at December 31, 20x4 that should be eliminated in the consolidation process is

27. BG Inc., acquired a 60 percent interest in HH Company several years ago. During 20x4, HH sold inventory costing P75,000 to BG for P100,000. A total of 16 percent of this inventory was not sold to outsiders until 20x5. During 20x5, HH sold inventory costing P96,000 to BG for P120,000. A total of 35 percent of this inventory was not sold to outsiders until 20x6. In 20x5, BG reported cost of goods sold of P380, 000 while HH reported P210.000. What is the consolidated cost of goods sold in 20x5? 28. Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to its parent at a P24,000 profit in 20x5. Penguin resold one-third of this inventory to outside entities. Squid reported net income of P100,000 for 20x5. Non-controlling interest in income that will appear in the consolidated income statement for 20x5 is 29. HW Inc., holds a 90 percent interest in PP Company. During 20x4, PP sold inventory costing P77,000 to HW for P110,000. Of this inventory, P40.000 worth was not sold to outsiders until 20x5. During 20x5,PP sold inventory costing P72,000 to HW for P120,000. A total of P50,000 of this inventory was not sold to outsiders until 20x6. In 20x5, HW reported net income of P150,000 while PP reported P90,000. What is the non-controlling interest in the 20x5 income of the subsidiary? 30. Cattle Company sold inventory with a cost of P40,000 to its 90%-owned subsidiary, Range Corp., for P100,000 in 20X4. Range resold P75,000 of this inventory for P100,000 in 20X4. Based on this information, the amount of inventory reported on the consolidated financial statements at the end of 20X4 is ____. 31. Perez Inc. owns 80 percent of Senior Inc. During 20x4, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 20x4. For 20x4 consolidated financial statement, how should the summation of Perez and Senior income statement items be adjusted? a. Sales and cost of goods sold should be reduced by the intercompany sales. b. Sales and cost of goods sold should be reduced by 80 percent of the intercompany sales. c. Net income should be reduce by 80% of the gross profit on intercompany sales. d. No adjustment is necessary. 32. Parker Corporation owns 80 percent of Smith Inc.’s common stock. During 20x4, Parker sold inventory to Smith for P250,000 on the same terms as sales made to third parties. Smith sold all of

QUIZ 17 the inventory purchased from Parker in 20x4. The following pertains to Smith and Parker’s sales for 20x4. Parker Smith Sales . . . . . . . . . . . . . . . . . . . . . . . .P1,000,000 P700,000 .. Cost of sales . . . . . . . . . . . . . . . . . . (400,000) (350,000) Gross P 600,000 P350,000 Profit . . . . . . . . . . . . . . . . . . . . What amount should Parker report as cost of sales in its 20x4 consolidated income statement?

33. During 20x4, Park Corporation recorded sales of inventory costing P500,0000 to Small Company, its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31,20x4, Small held one-fifth of this goods inventory. The following information pertains to Park and Small’s sales for 20x4: Park Small Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. .2,000,000 . P1,400,000 ... Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) . (700,000) . Gross P 1,200,000 P 700,000 Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . In its 20x4 consolidated income statement, what amount should Park report as cost of sales? Use the following information for questions 34 to 36: Ford Company is a 90 percent subsidiary of Davis Corporation. Ford sells P94,000 of inventory for P115,000 to Davis on November 27, 20x5. By the end of 20x5, Davis sells 40 percent of this inventory to unrelated parties for P65,000. Ford and Davis have income in 20x5 of P320,000 and P698,000, respectively. 34. What is the amount of the worksheet elimination to sales when the 20x5 consolidated financial statements are prepared? 35. What is the amount of the worksheet elimination to cost of goods sold when the 20x5 consolidated financial statements are prepared? 36. What is the amount of the worksheet elimination to inventory when the 20x5 consolidated financial statements are prepared? Use the following information for questions 37 to 42: Brown Company is a 70 percent subsidiary of Denison Corporation. Brown sells P28,000 of inventory for P37,000 to Denison on December 27, 20x5. None of this inventory was sold to unrelated parties by the end of 20x5. During 20x6, 60 percent of this inventory is sold to unrelated parties for P33,000. Brown and Denison have income in 20x6 of P184,000 and P298,000, respectively. 37. What is the amount of the worksheet elimination to retained earnings when the 20x6 consolidated financial statements are prepared? 38. What is the amount of the worksheet elimination to non-controlling interest when the 20x6 consolidated financial statements are prepared? 39. What is the amount of the worksheet elimination to sales when the 20x6 consolidated financial statements are prepared? 40. What is the amount of the worksheet elimination to cost of goods sold when the 20x6 consolidated financial statements are prepared? 41. What is the amount of the worksheet elimination to inventory when the 20x6 consolidated financial statements are prepared? 42. What is the income to non-controlling interest in 20x6? Use the following information for questions 43 to 47: Hartman Company is a 90 percent subsidiary of Tobin Corporation. Hartman sells P52,000 of inventory for P65,000 to Tobin on December 1, 20x5. Twenty percent of this inventory is sold to unrelated parties for P22,000 by the end of 20x5. During 20x6, another 70 percent of this inventory is sold to unrelated parties for P80,000. Hartman and Tobin have income in 20x6 of P312,000 and P539,000, respectively. 43. What is the amount of the worksheet elimination to retained earnings when the 20x6 consolidated financial statements are prepared? 44. What is the amount of the worksheet elimination to non-controlling interest when the 20x6 consolidated financial statements are prepared?

QUIZ 17 45. What is the amount of the worksheet elimination to sales when the 20x6 consolidated financial statements are prepared? 46. What is the amount of the worksheet elimination to cost of goods sold when the 20x6 consolidated financial statements are prepared? 47. What is the income to non-controlling interest in 20x6?

Use the following information for questions 48 to 55: On December 31, 20x5, Paper Co. purchased 60% of the outstanding common shares of Book Ltd. for P760,000 in shares and P200,000 in cash. The statements of financial position of Paper and Book immediately before the acquisition and issuance of the notes payable were as follows (in 000s):

Cash Accounts receivable Inventory Capital assets . Accounts payable Long-term liabilities Common shares Retained earnings

Paper Book Fair Value Value P360 P360 520 500 800 880 1,820 2,000 P3,500

______Book____ Book Fair Value Value P200 P200 380 380 400 360 1,420 1,640 P2,400

P 380 1,200 500 1,420 P3,500

P260 1000 600 540 P2,400

P380 1,200

P260 1000

The difference in the carrying value and the fair value of the capital assets for Book relates to its office building. This building has an estimated 20 years remaining of useful life. During 20x6, the year following the acquisition, the following occurred:  Throughout the year, Book purchased merchandise of P800,000 from Paper. Paper's gross margin is 30% of selling price. At December 31, 20X6, Book still owed Paper P250,000 on this merchandise. 75% of this merchandise was resold by Book prior to December 31, 20x6.  Throughout the year, Book sold merchandise to Paper totalling P500,000. The gross margin in these products is 25%. At the end of 20X6, Paper had not yet resold 60% of this merchandise.  Management fees were paid to Paper from Book totalling P250,000.  Book paid dividends of P250,000 at the end of 20x6 and Paper paid dividends of P500,000. During 20x7, the following occurred:  Throughout the year, Book purchased merchandise of P1,000,000 from Paper. Paper's gross margin is 30% of selling price. At December 31, 20x6, Book still owed Paper P150,000 on this merchandise. 85% of this merchandise was resold by Book prior to December 31, 20x7.  Throughout the year, Book sold merchandise to Paper totalling P650,000. The gross margin in these products is 25%. At the end of 20x6, Paper had not yet resold 40% of this merchandise.  Management fees were paid to Paper from Book totalling P250,000.  Book paid dividends of P250,000 at the end of 20x7 and Paper paid dividends of P500,000.  Paper uses the cost method to report its investment in Book. Statements of Financial Position As at December 31,20x7 (in thousands of Pesos) Assets Cash Accounts Receivable Inventories Capital assets, net Investment in Book Total assets

Paper P 50 575 825 2,870 960 P 5,280

Book 210 410 430 1,760 _______ P 2,810 P

QUIZ 17 Liabilities Accounts payable Long term liabilities Common shares Retained Earnings Total liabilities and shareholders' equity

P

465 1,290 1,260 2,265 P 5,280

P

325 950 600 935 P 2,810

Statements of Comprehensive Income For the year ended December 31, 20x7 (in thousands of Pesos) Paper Book Sales P 2,520 P 2,400 Management fees 250 Dividend income 150 ______ P 2,920 2,400 Cost of sales P 800 P 1,200 Depreciation and amortization expenses 670 325 Management fees expense 250 Other expenses 460 135 P1,930 P 1,910 Net income P 990 P 490

Statements of Changes in Equity — Retained Earnings Section For the year ended December 31,20X7 (in thousands of Pesos) Paper Book Retained earnings, December 31, 20X6 P 1,775 P 695 Net income 990 490 Dividends declared ( 500) ( 250) Retained earnings, December 31, 20X7 P 2,265 P 935 48. 49. 50. 51. 52. 53. 54.

The The The The The The The

full-goodwill arising from acquisition on December 31, 20x5 amounted to: non-controlling interests on December 31, 20x5 amounted to: amount of goodwill on December 31, 20x7 amounted to: non-controlling interests on December 31, 20x7 amounted to: consolidated retained earnings on December 31, 20x6 amounted to: consolidated retained earnings on December 31, 20x7 amounted to: capital assets, net on December 31, 20x7 amounted to:

SOLUTION: 1. Overstated by P320 It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin in the P9,600 of materials carried over ...