29 Jun Question 1. Schiff Company owns 100% of
Question
1. Schiff Company owns 100% of the outstanding common stock of the Viel Company. During 20X1, Schiff sold merchandise to Viel that Viel, in turn, sold to unrelated firms. There were no such goods in Viel’s ending inventory. However, some of the intercompany purchases from Schiff had not yet been paid. Which of the following amounts will be incorrect in the consolidated statements if no adjustments are made?
a. inventory, accounts payable, net income
b. inventory, sales, cost of goods sold, accounts receivable
c. sales, cost of goods sold, accounts receivable, accounts payable.
d. accounts receivable, accounts payable
2. The material sale of inventory items by a parent company to an affiliated company
a. enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining.
b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
c. does not result in consolidated income until the merchandise is sold to outside entities.
d. does not require a working paper adjustment if the merchandise was transferred at cost.
23. 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, 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.
Chapter 4
4. Sally Corporation, an 80%-owned subsidiary of Reynolds Company, buys half of its raw materials from Reynolds. The transfer price is exactly the same price as Sally pays to buy identical raw materials from outside suppliers and the same price as Reynolds sells the materials to unrelated customers. In preparing consolidated statements for Reynolds Company and Subsidiary
a. the intercompany transactions can be ignored because the transfer price represents arm’s length bargaining.
b. any unrealized profit from intercompany sales remaining in Reynolds’ ending inventory must be offset against the unrealized profit in Reynolds’ beginning inventory.
c. any unrealized profit on the intercompany transactions in Sally’s ending inventory is eliminated in its entirety.
d. eighty percent of any unrealized profit on the intercompany transactions in Sally’s ending inventory is eliminated.
5. Cattle Company sold inventory with a cost of $40,000 to its 90%-owned subsidiary, Range Corp., for $100,000 in 20X1. Range resold $75,000 of this inventory for $100,000 in 20X1. The amount of inventory reported on the consolidated financial statements at the end of 20X1 is _______.
a. $10,000
b. $18,000
c. $21,000
d. $30,000
6. Diller owns 80% of Lake Company common stock. During October 20X7, Lake sold merchandise to Diller for $300,000. On December 31, 20X7, one-half of this merchandise remained in Diller’s inventory. For 20X7, gross profit percentages were 30% for Diller and 40% for Lake. The amount of unrealized profit in the ending inventory on December 31, 20X7 that should be eliminated in consolidation is _______.
a. $80,000
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