Gulliver Corporation

Question 1 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of total inventory will be reported in the consolidated balance sheet prepared immediately after the business combination?

a) $130,000

b) $135,000

c) $90,000

d) $45,000

Question 2 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?

a) $0

b) $40,000

c) $20,000

d) $15,000

Question 3 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination?

a) $720,000

b) $840,000

c) $825,000

d) $865,000

Question 4 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?

a) $395,000

b) $280,000

c) $275,000

d) $195,000

Question 5 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount will be reported as noncontrolling interest in the consolidated balance sheet prepared immediately after the business combination?

a) $0

b) $15,000

c) $40,000

d) $46,000

Question 6 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of consolidated retained earnings will be reported immediately after the business combination?

a) $205,000

b) $120,000

c) $325,000

d) $310,000

Question 7 3 / 3 points

On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount will be reported as total stockholders’ equity in the consolidated balance sheet prepared immediately after the business combination?

a) $405,000

b) $205,000

c) $565,000

d) $550,000

Question 8 0 / 3 points

On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver Company’s voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers’s balance sheet at the date of acquisition contained the following balances:

At the date of acquisition, the reported book values of Denver’s assets and liabilities approximated fair value. Eliminating entries are being made to prepare a consolidated balance sheet immediately following the business combination.

Based on the preceding information, in the entry to eliminate the investment balance,

a) retained earnings will be credited for $20,000.

b) additional paid-in-capital will be credited for $20,000.

c) retained earnings will be credited for $10,000.

d) noncontrolling interest will be debited for 30,000.

Question 9 3 / 3 points

On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver Company’s voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers’s balance sheet at the date of acquisition contained the following balances:

At the date of acquisition, the reported book values of Denver’s assets and liabilities approximated fair value. Eliminating entries are being made to prepare a consolidated balance sheet immediately following the business combination.

Based on the preceding information, the amount of goodwill reported is:

a) $0

b) $10,000

c) $15,000

d) $20,000

Question 10 0 / 3 points

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

I. Always are needed.

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

a) I

b) II

c) Both I and II

d) Either I or II

Question 11 3 / 3 points

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.

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

Question 12 3 / 3 points

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.

Based on the information given above, by what amount was unadjusted revenue overstated in the combined income statement for 20X8?

a) $25,000

b) $56,892

c) $31,250

d) $6,250

Question 13 3 / 3 points

Senior Inc. owns 85 percent of Junior Inc. During 20X8, Senior sold goods with a 25 percent gross profit to Junior. Junior sold all of these goods in 20X8. How should 20X8 consolidated income statement items be adjusted?

a) No adjustment is necessary.

b) Sales and cost of goods sold should be reduced by 85 percent of the intercompany sales.

c) Net income should be reduced by 85 percent of the gross profit on intercompany sales.

d) Sales and cost of goods sold should be reduced by the intercompany sales.

Question 14 3 / 3 points

During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary. The subsidiary also makes sales of inventory at a profit to its parent during the same year. Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another. Consolidated revenues for the year should exclude:

a) 80 percent of the total revenues from intercompany sales.

b) total revenues from intercompany sales.

c) only the revenues from the subsidiary’s intercompany sales.

d) only the revenues from the parent’s intercompany sales.

Question 15 3 / 3 points

Global Corporation acquired 85 percent of Local Company’s voting shares of stock in 20X7. During 20X8, Global purchased 50,000 picture tubes for $15 each and sold 28,000 of them to Local for $20 each. Local sold all of the units to unrelated entities prior to December 31, 20X8, for $30 each. Both companies use perpetual inventory systems.

Which worksheet eliminating entry is needed in preparing consolidated financial statements for 20X8 to remove all effects of the intercompany sale?

a) Option A

b) Option B

c) Option C

d) Option D

Question 16 3 / 3 points

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 an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8.

Based on the information given above, what amount of sales will be reported in the 20X8 consolidated income statement?

a) $62,000

b) $120,000

c) $90,000

d) $58,000

Question 17 3 / 3 points

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 an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8.

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

a) $62,000

b) $120,000

c) $90,000

d) $58,000

Question 18 0 / 3 points

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 an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8.

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

Question 19 0 / 3 points

Blue Company owns 70 percent of Black Company’s outstanding common stock. On December 31, 20X8, Black sold equipment to Blue at a price in excess of Black’s carrying amount, but less than its original cost. On a consolidated balance sheet at December 31, 20X8, the carrying amount of the equipment should be reported at:

a) Blue’s original cost.

b) Black’s original cost.

c) Blue’s original cost less Black’s recorded gain.

d) Blue’s original cost less 70 percent of Black’s recorded gain.

Question 20 0 / 3 points

A wholly owned subsidiary sold land to its parent during the year at a gain. The parent continues to hold the land at the end of the year. The amount to be reported as consolidated net income for the year should equal:

a) the parent’s separate operating income, plus the subsidiary’s net income.

b) the parent’s separate operating income, plus the subsidiary’s net income, minus the intercompany gain.

c) the parent’s separate operating income, plus the subsidiary’s net income, plus the intercompany gain.

d) the parent’s net income, plus the subsidiary’s net income, minus the intercompany gain.

Question 21 3 / 3 points

Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:

I. in the year of the downstream sale.

II. over the period of time the subsidiary uses the land.

III. in the year the subsidiary sells the land to an unrelated party.

a) I

b) II

c) III

d) I or II

Question 22 3 / 3 points

ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 percent of XYZ’s voting shares.

Based on the preceding information, what will be the worksheet eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X8?

a) Option A

b) Option B

c) Option C

d) Option D

Question 23 0 / 3 points

Parent Company owns 70% of Son Company’s outstanding stock. During 20X1 Son Company sold land to Parent Company for a gain of $25,000. Parent company held the land all of 20X1. The gain on the sale to Parent should be:

a) recorded on Son’s books as a gain of $25,000 and then eliminated during the consolidation process.

b) deferred by Son until Parent sells the land to an outside party.

c) recorded on Son’s books as a gain of $17,500 and eliminated during the consolidation process.

d) recorded on Parent’s book as a gain of $17,500 and eliminated during the consolidation process.

Question 24 3 / 3 points

Cutler Company owns 80 percent of the common stock of Marina Inc. Cutler acquires some of Marina’s bonds from an unrelated party for less than the carrying value on Marina’s books and holds them as a long-term investment. For consolidated reporting purposes, how is the acquisition of Marina’s bonds treated?

a) As a decrease in the Bonds Payable account on Marina’s books.

b) As an increase in noncurrent assets.

c) Everything related to the bonds is eliminated in the consolidation worksheet, and nothing related to the bonds appears in the consolidated financial statements.

d) As a retirement of bonds.

Question 25 3 / 3 points

Culver owns 80 percent of the common stock of Fowler Company. Culver also purchases some of Fowler’s bonds directly from Fowler and holds the bonds as a long-term investment. How is the acquisition of the bonds treated for consolidated reporting purposes?

a) As a retirement of bonds.

b) As an increase in the Bonds Payable account on Fowler’s books.

c) Everything related to the intercompany bonds is eliminated in the consolidation worksheet, and nothing related to the bonds appears in the consolidated financial statements.

d) As an increase in noncurrent assets.

Question 26 3 / 3 points

When one company purchases the debt of an affiliate from an unrelated party, a gain or loss on the constructive retirement of debt is recognized by which of the following?

a) Option A

b) Option B

c) Option C

d) Option D

Question 27 3 / 3 points

Which sections of the cash flow statement are affected by the difference in the direct and indirect approaches of presenting a cash flow statement?

I. Operating activities section

II. Investing activities section

III. Financing activities section

a) I

b) II

c) III

d) I, II, and III

Question 28 3 / 3 points

Dividends paid to noncontrolling shareholders:

I. are reported as a cash outflow in the consolidated cash flow statement.

II. represent funds that are no longer available to the consolidated entity.

III. are reported in the consolidated retained earnings statement.

a) Observation I alone is true.

b) Observation III alone is true.

c) Observations I and II are true.

d) Observations I, II, and II are true.

Question 29 0 / 3 points

For a subsidiary to be eligible to be included in a consolidated tax return, at least _____ of its stock must be held by the parent company or another company included in the consolidated return.

a) 50 percent

b) 40 percent

c) 75 percent

d) 80 percent

Question 30 0 / 3 points

Company A holds 70 percent of the voting shares of Company B. During 20X8, Company B sold land with a book value of $125,000 to Company A for $150,000. Company A continues to hold the land at the end of the year. The companies file separate tax returns and are subject to a 40 percent tax rate. Assume that Company A uses the fully adjusted equity method in accounting for its investment in Company B.

Based on the information given, which eliminating entry relating to the intercorporate sale of land is to be entered in the consolidation worksheet prepared at the end of 20X8?

a) Option A

b) Option B

c) Option C

d) Option D

Question 31 8 / 10 points

Colton Company acquired 80 percent ownership of Mota Company’s voting shares on January 1, 2008, at underlying book value. The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of Mota Company. During 2008, Colton purchased inventory for $30,000 and sold the full amount to Mota Company for $50,000. On December 31, 2008, Mota’s ending inventory included $10,000 of items purchased from Colton. Also in 2008, Mota purchased inventory for $80,000 and sold the units to Colton for $100,000. Colton included $30,000 of its purchase from Mota in ending inventory on December 31, 2008. Summary income statement data for the two companies revealed the following:

Required:

a. Compute the amount to be reported as sales in the 20X8 consolidated income statement.

b. Compute the amount to be reported as cost of goods sold in the 20X8 consolidated income statement.

 

Question 32 5 / 5 points

On April 7 2012, Pate Corp. sold land to Shannahan Co., its wholly owned subsidiary. From a consolidated point of view, WHEN will the gain on this transfer actually be earned?

 

Question 33 5 / 5 points

Throughout 2012, Cleveland Co. sold inventory to Leeward Co., its wholly owned subsidiary. From a consolidated point of view, WHEN will the gain on this transfer be earned?

 

Question 34 10 / 10 points

How does a gain on an intercompany sale of equipment affect the calculation of a non-controlling interest? Downstream and/or upstream.

 

The correct answer is not displayed for Long Answer type questions.

Question 35 20 / 30 points

The sales of merchandise by Pater Corporation to its 80%-owned subsidiary, Sibling Company, during the fiscal year ended March 31, 2012, may be analyzed as follows:

Pater and Sibling file separate income tax returns; the income tax rate is 40%; and the criteria for recognizing a deferred tax asset without a valuation allowance are met.

Prepare working paper eliminations, including income taxes, (in journal entry format) for Pater Corporation and subsidiary on March 31, 2012. Omit explanations.

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