11 in preparing consolidation working papers why is it necessary to eliminate interc 4309880

11) In preparing consolidation working papers, why is it necessary to eliminate intercompany profits?

A) To nullify the effect of intercompany transactions on consolidated financial statements

B) To defer intercompany profits until the following year

C) To allocate unrealized profits until the following year

D) To reduce consolidated income

12) Taguchi Ltd. owns 80% of Shag Co. Shag declared and paid $100,000 in dividends. Taguchi uses the cost method to record its investment in Shag. In preparing Taguchi's consolidated financial statements, what elimination entry must be made with respect to the dividends?

A)

DR  Dividend income	80,000
CR  Dividends declared	80,000

B)

DR  Dividend income	80,000
DR  Non-controlling interest	20,000
CR  Dividends declared	100,000

C)

DR  Non-controlling interest	20,000
CR  Dividends declared	20,000

D)

DR  Dividend income	100,000
CR  Dividends declared	100,000

13) Bates Ltd. owns 60% of the outstanding common shares of Sam Ltd. During 20X6, sales from Sam to Bates were $200,000. Merchandise was priced to provide Sam with a gross margin of 20%. Bates' inventories contained $40,000 at December 31, 20X5 and $15,000 at December 31, 20X6 of merchandise purchased from Sam. Cost of goods sold for Bates and Sam for 20X6 on their separate-entity income statements were as follows:

	Bates	Sam
Beginning inventory	$ 100,000	$  50,000
Purchases	700,000	200,000
Ending inventory	(110,000)	(55,000)
Cost of goods sold	$ 690,000	$195,000

What is the balance of the inventory account on Bates' consolidated statement of financial position at December 31, 20X6?

A) $140,000

B) $160,000

C) $162,000

D) $165,000

14) Portia Ltd. acquired 80% of Siro Ltd. on December 31, 20X0. At the date of acquisition, Siro's net assets totalled $15,000. Portia uses the cost method to record the acquisition. At December 31, 20X1, the separate-entity financial statements showed the following:

	Portia	Siro
Sales	$25,000	10,000
Cost of goods sold	16,000	4,000
Operating expenses	4,800	2,400
Net income	$  4,200	$3,600
Cash	$  1,400	$  2,000
Accounts receivable	10,600	8,500
Inventory	9,700	6,300
Net capital assets	17,300	7,700
Investment in Siro	12,000	–
	$51,000	$24,500
Liabilities	$15,800	$  5,900
Common shares	20,000	10,000
Retained earnings	15,200	8,600
	$51,000	$24,500

During 20X1, Siro sold $7,000 of goods, with a gross margin of 40%, to Portia. At the end of 20X1, $3,000 of the goods were still in Portia's inventory. What portion of consolidated net income for 20X1 is attributable to Portia?

A) $6,120

B) $6,240

C) $6,600

D) $7,080

15) What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?

A) To report the net income of the parent company to its shareholders

B) To report the net income of the subsidiary company to its shareholders

C) To report the net income of the parent and subsidiary companies to their respective shareholders

D) To report the net income of the parent and subsidiary companies to the tax department

16) Portia Ltd. acquired 80% of Siro Ltd. on December 31, 20X0. At the acquisition date, Siro's net assets totalled $15,000. Portia uses the cost method to record the acquisition. At December 31, 20X1, the separate-entity financial statements showed the following:

	Portia	Siro
Sales	$25,000	$10,000
Cost of goods sold	16,000	4,000
Operating expenses	4,800	2,400
Net income	$  4,200	$ 3,600
Cash	$  1,400	$  2,000
Accounts receivable	10,600	8,500
Inventory	9,700	6,300
Net capital assets	17,300	7,700
Investment in Siro	12,000	–
	$51,000	$24,500
Liabilities	$15,800	$  5,900
Common shares	20,000	10,000
Retained earnings	15,200	8,600
	$51,000	$24,500

During 20X1, Siro sold $7,000 of goods, with a gross margin of 40%, to Portia. At the end of 20X1, $3,000 of the goods were still in Portia's inventory. What is Portia's consolidated cost of goods sold for 20X1?

A) $11,800

B) $14,200

C) $14,800

D) $20,000

17) Under IAS 27, where does the non-controlling interest (NCI) appear on the statement of financial position?

A) Under the liabilities section

B) Under the shareholders' equity section

C) Between the liabilities and shareholders' equity sections

D) NCI does not appear on the statement of financial position

18) Portia Ltd. acquired 80% of Siro Ltd. on December 31, 20X0. At the acquisition date, Siro's net assets totalled $15,000. Portia uses the cost method to record the acquisition. At December 31, 20X1, the separate-entity financial statements showed the following:

	Portia	Siro
Sales	$25,000	$10,000
Cost of goods sold	16,000	4,000
Operating expenses	4,800	2,400
Net income	$  4,200	$ 3,600
Cash	$  1,400	$  2,000
Accounts receivable	10,600	8,500
Inventory	9,700	6,300
Net capital assets	17,300	7,700
Investment in Siro	12,000	–
	$51,000	$24,500
Liabilities	$15,800	$  5,900
Common shares	20,000	10,000
Retained earnings	15,200	8,600
	$51,000	$24,500

During 20X1, Siro sold $7,000 of goods, with a gross margin of 40%, to Portia. At the end of 20X1, $3,000 of the goods were still in Portia's inventory. What amount should be shown on the consolidated statement of financial position for the non-controlling interest at December 31, 20X1?

A) $   720

B) $1,720

C) $3,480

D) $3,720

19) Fleming Ltd. acquired 75% of Donner Ltd. at April 30, 20X1. Both companies have April 30th year-ends. Which of the following should be made to the opening non-controlling interest (NCI) balance to arrive at the April 30, 20X2 NCI balance on Fleming's statement of financial position?

A) Add in the NCI's share of Donner's fiscal 20X2 net income and subtract the NCI's share of Donner's dividends declared.

B) Subtract the NCI's share of Donner's fiscal 20X2 net income and add in the NCI's share of Donner's dividends declared.

C) Add in both the NCI's share of Donner's fiscal 20X2 net income and dividends declared.

D) Subtract both the NCI's share of Donner's fiscal 20X2 net income and dividends declared.

Answer:  A

Type: MC      Page Ref: 221

Difficulty:  Moderate

20) How is the consolidated ending retained earnings balance calculated?

A) Add the beginning consolidated retained earnings to consolidated net income and subtract the parent company's dividends declared.

B) Add together the ending retained earnings of all the affiliated companies.

C) Adjust the parent company's opening retained earnings for the subsidiary's profits and dividends

D) Adjust the parent company's ending retained earnings for the subsidiary's profits and dividends

Answer:  A

Type: MC      Page Ref: 221-222

Difficulty:  Moderate