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Chapter 5 Test Bank

INTERCOMPANY PROFIT TRANSACTIONS INVENTORIES

Multiple Choie !uestions

"O#

#$ The %aterial sale o& in'entor( ite%s )( a parent o%pan( to an

a&&iliate* o%pan(

a$ enters the onsoli*ate* re'enue o%putation onl( i& the

trans&er +as the result o& ar%,s len-th )ar-ainin-$

)$ a&&ets onsoli*ate* net ino%e un*er a perio*i in'entor(

s(ste% )ut not un*er a perpetual in'entor( s(ste%$

$ *oes not result in onsoli*ate* ino%e until the

%erhan*ise is sol* to outsi*e parties$

*$ *oes not re.uire a +orkin- paper a*/ust%ent i& the

%erhan*ise +as trans&erre* at ost$

"O#

0$ 1one(eater Corporation o+ns a 234 interest in Netar Co%pan(

a.uire* se'eral (ears a-o at a ost e.ual to )ook 'alue an*

&air 'alue$ Netar sells %erhan*ise to 1one(eater &or the

&irst ti%e in 0335$ In o%putin- ino%e &ro% the in'estee &or

0335 un*er the e.uit( %etho* 1one(eater uses +hih e.uation6

a$ 234 o& Netar,s ino%e less #334 o& the unreali7e* pro&it

in 1one(eater8s en*in- in'entor($

)$ 234 o& Netar,s ino%e plus #334 o& the unreali7e* pro&it

in 1one(eater8s en*in- in'entor($

$ 234 o& Netar,s ino%e less 234 o& the unreali7e* pro&it in

1one(eater,s en*in- in'entor($

*$ 234 o& Netar,s ino%e plus 234 o& the unreali7e* pro&it in

1one(eater,s en*in- in'entor($

"O#

9$ In situations +here there are routine in'entor( sales )et+een

parent o%panies an* su)si*iaries +hen preparin- the

onsoli*ation state%ents +hih o& the &ollo+in- line ite%s isin*i&&erent to the sales )ein- either upstrea% or *o+nstrea%6

a$ Consoli*ate* retaine* earnin-s$

)$ Consoli*ate* -ross pro&it$

$ Nonontrollin- interest e:pense$

*$ Consoli*ate* net ino%e$

;033< Pearson E*uation In$ pu)lishin- as Prentie 1all

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"O0

2$ The onsoli*ation proe*ures &or intero%pan( sales are

si%ilar &or upstrea% an* *o+nstrea% sales

a$ i& the %erhan*ise is trans&erre* at ost$

)$ un*er a perio*i in'entor( s(ste% )ut not un*er a perpetual

in'entor( s(ste%$$ i& the %erhan*ise is i%%e*iatel( sol* to outsi*e parties$

*$ +hen the su)si*iar( is #334 o+ne*$

>se the &ollo+in- in&or%ation to ans+er .uestions 5 throu-h

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"O0

$ I& the sale re&erre* to a)o'e +as a *o+nstrea% sale )( +hat

a%ount %ust In'entor( )e re*ue* to re&let the orret )alane

as o& the en* o& 03326

a$ 9333$

)$ #3333$$ #2333$

*$ 03333$

"O0

$ For 0332 onsoli*ate* net ino%e +ill )e +hat a%ount i& the

intero%pan( sale +as *o+nstrea%6

a$ 2533$

)$ 2?33$

$ 2?233$

*$ 53333$

"O0

?$ I& the intero%pan( sale %entione* a)o'e +as an upstrea% sale+hat +ill )e the reporte* a%ount o& total sales re'enue &or

03356

a$ #305333$

)$ #

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>se the &ollo+in- in&or%ation to ans+er .uestions < an* #3$

@uk Corporation a.uire* a 34 interest in histle Corporation

on Ganuar( # 0335 +hen histle,s )ook 'alues +ere e.ual to

their &air 'alues$ @urin- 0335 @uk sol* %erhan*ise that ost

5333 to histle &or ##3333$ On @ee%)er 9# 0335 three=

&ourths o& the %erhan*ise a.uire* &ro% @uk re%aine* inhistle,s in'entor($ Separate ino%es Hin'est%ent ino%e not

inlu*e* o& @uk an* histle are as &ollo+s

@uk histle

Sales Re'enue #53333 033333

Cost o& Doo*s Sol*

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"O9

#0$ Pon* Co$ a 554=o+ne* su)si*iar( o& Doose In$ %a*e the

&ollo+in- entr( to reor* a sale o& %erhan*ise to Doose

Aounts Reei'a)le 3333

Sales Re'enue 3333

All Pon* sales are at #054 o& ost$ One=thir* o& this

%erhan*ise re%aine* in the Doose,s in'entor( at (ear=en*$ A

+orkin- paper entr( to eli%inate unreali7e* pro&its &ro%

onsoli*ate* in'entor( +oul* inlu*e a re*it to In'entor( in

the a%ount o&

a$ 2333$

)$ 5333$

$ ?333$

*$ #3333$

>se the &ollo+in- in&or%ation to ans+er .uestions #9 #2 an*

#5$

ren Corporation a.uire* ?34 o+nership o& Ari* Inorporate*

at a ti%e +hen ren,s in'est%ent Husin- the e.uit( %etho* an*

Ari*,s )ook 'alues +ere e.ual$ @urin- 0335 ren sol* -oo*s to

Ari* &or 033333 %akin- a -ross pro&it perenta-e o& 034$

1al& o& these -oo*s re%aine* unsol* in Ari*,s in'entor( at the

en* o& the (ear$ Ino%e state%ent in&or%ation &or ren an*

Ari* &or 0335 +ere as &ollo+s

ren Ari*

Sales Re'enue #333333 33333

Cost o& Doo*s Sol* 533333 233333

Operatin- E:penses 533333 ?3333

Separate ino%es 053333 #03333

"O9

#9$ The 0335 onsoli*ate* ino%e state%ent sho+e* ost o& -oo*s

sol* o&

a$ 03333$

)$ ??3333$$

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"O9

#2$ The 0335 onsoli*ate* ino%e state%ent sho+e* ino%e &ro% Ari*

o&

a$ 5333$

)$ 333$

$ ?3333$*$ se the &ollo+in- in&or%ation &or .uestions # an* #?

Dre)e Co%pan( routinel( reei'es -oo*s &ro% its ?34=o+ne* su)si*iar(

S+a%p Corporation$ In 0332 S+a%p sol* %erhan*ise that ost ?3333

to Dre)e &or #33333$ 1al& o& this %erhan*ise re%aine* in Dre)e,s

@ee%)er 9# 0332 in'entor($ @urin- 0335 S+a%p sol* %erhan*ise that

ost #3333 to Dre)e &or 033333$ 0533 o& the 0335 %erhan*ise

in'entor( re%aine* in Dre)e,s @ee%)er 9# 0335 in'entor($ Selete*

ino%e state%ent in&or%ation &or the t+o a&&iliates &or the (ear 0335

+as as &ollo+s

Dre)e S+a%p

Sales Re'enue 533333 233333

Cost o& Doo*s Sol* 233333 903333

Dross pro&it #33333 ?3333


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"O2

#$ Consoli*ate* ost o& -oo*s sol* &or Dre)e an* Su)si*iar( &or

0335 +ere

a$ 5#0333$

)$ 50333$

$ 500533$*$ 50?333$

"O2

#?$ hat a%ount o& unreali7e* pro&it *i* Dre)e Co%pan( ha'e at the

en* o& 03326

a$ #3333$

)$ #0533$

$ 53333$

*$ 0533$

"O5

#

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"O9

E:erise #

Petrel Corporation a.uire* a 34 interest in Salt Corporation on

Ganuar( # 0335 at a ost e.ual to )ook 'alue an* &air 'alue$ Salt

reports net ino%e o& ??3333 &or 0335$ Petrel re-ularl( sells

%erhan*ise to Salt at #034 o& Petrel,s ost$ The intero%pan( salesin&or%ation &or 0332 is as &ollo+s

Intero%pan( sales at sellin- prie 0333

Value o& %erhan*ise re%ainin-

unsol* )( Salt #90333

Re.uire*

#$ @eter%ine the unreali7e* pro&it in Salt,s in'entor( at @ee%)er

9# 0332$

0$ Co%pute Petrel,s ino%e &ro% Salt &or 0335$

"O9K2

E:erise 0

Fri-ate)ir* Co$ )ou-ht 54 o& the outstan*in- 'otin- stok o& Cli&&

Corporation at )ook 'alue se'eral (ears a-o$ Fri-ate)ir* sells

%erhan*ise to Cli&& at #054 a)o'e Fri-ate)ir*,s ost$ Intero%pan(

sales &ro% Fri-ate)ir* to Cli&& &or 0335 +ere 53333$ >nreali7e*

pro&its in Cli&&,s @ee%)er 9# 0332 in'entor( an* @ee%)er 9# 0335

in'entor( +ere 0333 an* 9?333 respeti'el($ Cli&& reporte* net

ino%e o&

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"O2

E:erise 5

I)is Corporation a.uire* #334 o& "ake Co$ o%%on stok on Ganuar( #

0339 &or 553333 +hen the )ook 'alues o& "ake,s assets an*

lia)ilities +ere e.ual to their &air 'alues an* "ake,s stokhol*ers,

e.uit( onsiste* o& 0?3333 o& Capital Stok an* 03333 o&Retaine* Earnin-s$

I)is, separate ino%e He:lu*in- "ake +as

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"O9K2

E:erise

Bittern Corporation a.uire* a 34 interest in Ree* Corporation at

)ook 'alue se'eral (ears a-o$ Ree* purhases its entire in'entor(

&ro% Bittern at #234 o& Bittern,s ost$ @urin- 0335 Bittern sol*

#3333 o& %erhan*ise to Ree*$ Ree*,s )e-innin- an* en*in-in'entories &or 0335 +ere 2

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The &ollo+in- on'ersion to e.uit( she*ule pro'i*es in&or%ation that

%a( )e help&ul in o%pletin- the onsoli*ation +orkin- papers &or the

(ear en*e* @ee%)er 9# 0335$

Retaine*

Earnin-s

In'est%ent

in Plu%e

Ino%e

&ro%Plu%e

Prior (ears

In'entor( pro&it H #333 H #333

Current (ear

In'entor( pro&it=0332 #333 #333

In'entor( pro&it=0335 H #533 H#533

Totals H #333 H #533 H 533

Re.uire*

Finanial state%ents o& E-ret an* Plu%e appear in the &irst t+o

olu%ns o& the partiall( o%plete* +orkin- papers$ Co%plete the

onsoli*ation +orkin- papers &or E-ret Corporation an* Su)si*iar( &or

the (ear en*e* @ee%)er 9# 0335$


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E-ret Corporation an* Su)si*iar(

Consoli*ation orkin- Papers

&or the (ear en*e* @ee%)er 9# 0335

E-ret Plu%e

Eli%inations Balane

Sheet@e)it Cre*it

INCOME STATEMENTSales

29333 03333

Ino%e &ro%

Plu%e 033

Cost o& Sales H 00333 H ?333

Other e: enses H #0033 H 9333

Net ino%e #333

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"O2

E:erise ?

Car*inal Corporation a.uire* a

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Re.uire*

Prepare a she*ule to *eter%ine Plo'er Corporation,s net ino%e &or

0339 0332 an* 0335$

"O5

E:erise #3

On Ganuar( # 0332 "ap+in- Corporation purhase* 34 o& the o%%on

stok o& Fora-e Corporation &or 903333 +hen Fora-e ha* Co%%on Stok

outstan*in- o& #33333 an* Retaine* Earnin-s o& 033333$ An( e:ess

*i&&erential +as attri)ute* to -oo*+ill$

At the en* o& 0332 "ap+in- an* Fora-e ha* unreali7e* in'entor(

pro&its &ro% intero%pan( sales o& 333 an* ?333 respeti'el($

These (ear=en* pro&it a%ounts +ere reali7e* in 0335$ At the en* o&

0335 "ap+in- hel* in'entor( a.uire* &ro% Fora-e +ith a #3333

unreali7e* pro&it$ "ap+in- reporte* separate ino%e o& #33333 &or

0335 an* pai* *i'i*en*s o& 93333$ Fora-e reporte* separate ino%eo& 3333 &or 0335 an* pai* *i'i*en*s o& 03333$

Re.uire*

Co%pute the a%ount o& onsoli*ate* net ino%e &or 0335$


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#3$ ) Co%)ine* ost o& sales #3333

"ess Intero%pan( sales re'enue H ##3333

Plus >nreali7e* pro&it taken out

o& in'entor( H54:H95333 0053

Consoli*ate* ost o& sales 053

##$ a H##5333 : 34 = 0053 52053

#0$ a Sellin- prie 3333

"ess Cost o& sales H 2?333

>nreali7e* pro&it #0333

>nsol* &ration #L9

Cre*it to In'entor( 2333

#9$ a 533333J233333=

033333J03333

#2$ ) #03333$?=033333$0$5

#5$ * @o+nstrea% situation

#$ a It +ill )e o'erstate* )( the

a%ount o& the %inorit( interests,

share o& the #33 o& pro&it%ar-in in the

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#

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E:erise #

Re.uire%ent #

>nreali7e* pro&it in in'entor(

#90333 H#90333L#$0 00333

Re.uire%ent 0

Ino%e &ro% Salt &or 0335

Share o& Salt,s ino%e H??3333 : 34 50?333

"ess >nreali7e* pro&it in en*in- in'entor( H 00333

Ino%e &ro% Salt 53333

E:erise 0

Re.uire%ent #

Ino%e &ro% Cli&&

Share o& Cli&&,s reporte* net ino%e

nreali7e* pro&it in )e-innin- in'entor( 0333

"ess >nreali7e* pro&it in en*in- in'entor( H 9?333

Ino%e &ro% Cli&& 2333

Re.uire%ent 0

@e)it Cre*it

Sales Re'enue 53333

Cost o& Doo*s Sol* 53333

To eli%inate intero%pan( sales an* purhases

In'est%ent in Cli&& 0333

Cost o& Doo*s Sol* 0333

To reo-ni7e pre'iousl( *e&erre* unreali7e* pro&its &ro% the

)e-innin- in'entor(

Cost o& Doo*s Sol* 9?333

In'entor( 9?333

To eli%inate intero%pan( pro&it in the en*in- in'entor( &ro% ost o&

-oo*s sol* an* in'entor(


5=#

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E:erise 9

Tern Corporation an* Su)si*iar(

Consoli*ate* Ino%e State%ent


Sales Ho%)ine* #33333 = 005333 intero%pan( #95333Cost o& Doo*s Sol* Hsee )elo+ H 3333E:penses H 233333Minorit( Interest H 03333

Consoli*ate* net ino%e 0?5333

Consoli*ate* ost o& -oo*s sol* o%putation

Co%)ine* ost o& sales H33333 J 933333 nreali7e* pro&it in )e-innin- in'entor(

H#?3333 = #03333 : #L0 H 93333

A** >nreali7e* pro&it in en*in- in'entor( H005333 = #53333 : #L9 05333

Consoli*ate* Cost o& Doo*s Sol* 3333

E:erise 2




Sales Ho%)ine* 993333 J #?3333 = #2?333 90333Cost o& Doo*s Sol* Hsee )elo+ H #5053E:penses H

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E:erise 5

0339 0332 0335

I)is,s separate ino%e

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E:erise


Consoli*ation orkin- Papers


E-ret Plu%eEli%inations Non=

Cntrl$BalaneSheet@e)it Cre*it

INCOME STATEMENT

Sales

29333 03333 ) 333 5333

Ino%e &ro%

Plu%e 033

a

e

533

33

Cost o& Sales H 00333 H ?333

* #533 )

333

#333 H 02533

Other e:penses H #0033 H 9333 H #5033

Minorit( ino%e #?33 H #?33

Net ino%e #333 ITY

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E:erise ?

Car*inal Corporation an* Su)si*iar(



Sales Ho%)ine* ?93333 J 0

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E:erise #3

"ap+in- separate ino%e #33333

A** Reali7e* pro&it in )e-innin-

in'entor( H-i'en 333

"ess >nreali7e* pro&it in en*in- in'entor( H-i'en H #3333

"ap+in- a*/uste* separate ino%e

Documents

Ch05 Beams10e TB