multiple choice questions 1 the material sale of inventory items by a parent company 4307672

Multiple Choice Questions

1) 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 parties.

D) does not require a working paper adjustment if the merchandise was transferred at cost.

2) Phast Corporation owns a 80% interest in Stechno Company, acquired several years ago at a cost equal to book value and fair value. Stechno sells merchandise to Phast for the first time in 2011, and some is unsold at December 31, 2011. In computing income from the investee for 2011 under the equity method, Phast uses which equation?

A) 80% of Stechno's income less 100% of the unrealized profit in Phast's ending inventory

B) 80% of Stechno's income plus 100% of the unrealized profit in Phast's ending inventory

C) 80% of Stechno's income less 80% of the unrealized profit in Phast's ending inventory

D) 80% of Stechno's income plus 80% of the unrealized profit in Phast's ending inventory

3) Assume there are routine inventory sales between parent companies and subsidiaries. When preparing the consolidated financial statements, which of the following line items is indifferent to the sales being either upstream or downstream?

A) Consolidated retained earnings

B) Consolidated gross profit

C) Noncontrolling interest share

D) Controlling interest share of consolidated net income

4) A(n) ________ sale is a sale by a parent company to a subsidiary. A(n) ________ sale is a sale by a subsidiary to a parent company.

A) deferred; realized.

B) realized; deferred.

C) upstream; downstream

D) downstream; upstream

5) If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2011 would be

A) $870,000.

B) $880,000.

C) $920,000.

D) $970,000.

6) If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2011?

A) $3,000

B) $10,000

C) $14,000

D) $20,000

7) For 2011, consolidated net income will be what amount if the intercompany sale was downstream?

A) $180,000

B) $253,000

C) $256,000

D) $259,000

8) If the intercompany sale mentioned above was an upstream sale, what will be the reported amount of total consolidated sales revenue for 2012?

A) $1,025,000

B) $1,900,000

C) $1,950,000

D) $2,000,000

9) If the intercompany sale was an upstream sale, the total amount of consolidated cost of goods sold for 2012 will be

A) $300,000.

B) $430,000.

C) $470,000.

D) $477,000.

10) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31, 2012 will show consolidated cost of sales of

A) $120,000.

B) $136,000.

C) $148,000.