TBChap 005

Chapter 05
Consolidated Financial Statements-Intra-Entity Asset

Transactions
Multiple Choice Questions
1. On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned
subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the
perspective of the combination, when is the gain on the sale of the land realized?
A.
B.
C.
D.
E.
Proportionately over a designated period of years.

When Wood Co. sells the land to a third party.
No gain can be recognized.
As Wood uses the land.
When Wood Co. begins using the land productively.
2. Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made
several sales of inventory to Stendall. The cost and selling price of the goods were
$140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at
the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of
a consolidating adjustment for intra-entity sales less the entire profit remaining in
Stendall's ending inventory.
How would consolidated cost of goods sold have differed if the inventory transfers
had been for the same amount and cost, but from Stendall to Edgar?
A. Consolidated cost of goods sold would have remained $2,140,000.
B. Consolidated cost of goods sold would have been more than $2,140,000 because
of the controlling interest in the subsidiary.
C. Consolidated cost of goods sold would have been less than $2,140,000 because of
the non-controlling interest in the subsidiary.
D. Consolidated cost of goods sold would have been more than $2,140,000 because
of the non-controlling interest in the subsidiary.
E. The effect on consolidated cost of goods sold cannot be predicted from the
information provided.
5-1
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3. Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made
several sales of inventory to Stendall. The cost and selling price of the goods were
$140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at
the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of
a consolidating adjustment for intra-entity sales less the entire profit remaining in
Stendall's ending inventory.
How would non-controlling interest in net income have differed if the transfers had
been for the same amount and cost, but from Stendall to Edgar?
A.
B.
C.
D.
E.
Non-controlling interest in net income would have decreased by $6,000.

Non-controlling interest in net income would have increased by $24,000.
4. On January 1, 2013, Race Corp. acquired 80% of the voting common stock of Gallow
Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000.
Gallow still owned 15% of the goods at year-end. Gallow's reported net income was
$204,000, and Race's net income was $806,000. Race decided to use the equity
method to account for this investment. What was the non-controlling interest's share
of consolidated net income?
A.
B.
C.
D.
E.
$3,600.
$22,800.
$30,900.
$32,900.
$40,800.
5. Webb Co. acquired 100% of Rand Inc. on January 5, 2013. During 2013, Webb sold
goods to Rand for $2,400,000 that cost Webb $1,800,000. Rand still owned 40% of
the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and
$6,400,000 for Rand. What was consolidated cost of goods sold?
A.
B.
C.
D.
E.
$17,200,000.
$15,040,000.
$14,800,000.
$15,400,000.
$14,560,000.
5-2
6. Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012, Gentry
sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still
owned 12% of the goods at the end of the year. In 2013, Gentry sold goods with a
cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned
10% of the goods at year-end. For 2013, cost of goods sold was $5,400,000 for
Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold
for 2013?
A.
B.
C.
D.
E.
$6,600,000.
$6,604,000.
$5,620,000.
$5,596,000.
$5,625,000.
7. X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2013,
Kent made several sales of inventory to X-Beams. The total selling price was
$180,000 and the cost was $100,000. At the end of the year, 20% of the goods were
still in X-Beams' inventory. Kent's reported net income was $300,000. What was the
non-controlling interest in Kent's net income?
A.
B.
C.
D.
E.
$90,000.
$85,200.
$54,000.
$94,800.
$86,640.
8. Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with
a book value of $48,000. The selling price was $70,000. In its accounting records,
Justings should
A. not recognize a gain on the sale of the land since it was made to a related party.
B.
recognize a gain of $17,600.
C. defer recognition of the gain until Evana sells the land to a third party.
D.
E.
9. Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2,
2012, Thelma sold a parcel of land to Norek. The land had a book value of $32,000
and was sold to Norek for $45,000. Thelma's reported net income for 2012 was
$119,000. What is the non-controlling interest's share of Thelma's net income?
A.
B.
C.
D.
E.
$35,700.
$31,800.
$39,600.
$22,200.
$26,100.
5-3
10. Clemente Co. owned all of the voting common stock of Snider Co. On January 2,
2012, Clemente sold equipment to Snider for $125,000. The equipment had cost
Clemente $140,000. At the time of the sale, the balance in accumulated depreciation
was $40,000. The equipment had a remaining useful life of five years and a $0
salvage value. Straight-line depreciation is used by both Clemente and Snider.
At what amount should the equipment (net of depreciation) be included in the
consolidated balance sheet dated December 31, 2012?
A.
B.
C.
D.
E.
$105,000.
$100,000.
$95,000.
$80,000.
$85,000.
11. Clemente Co. owned all of the voting common stock of Snider Co. On January 2,
Clemente $140,000. At the time of the sale, the balance in accumulated depreciation
was $40,000. The equipment had a remaining useful life of five years and a $0
salvage value. Straight-line depreciation is used by both Clemente and Snider.
A.
B.
C.
D.
E.
$110,000.
$105,000.
$100,000.
$90,000.
$60,000.
12. During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The
inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the
combination, when is the $14,000 gain realized?
A. When the goods are sold to a third party by Lord.
B.
When Lord pays Von for the goods.
C.
When Von sold the goods to Lord.
D.
When the goods are used by Lord.
E. No gain can be recognized since the transaction was between related parties.
5-4
13. Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2012, Devin
made frequent sales of inventory to Bauerly. There were unrealized gains of $40,000
in the beginning inventory and $25,000 of unrealized gains at the end of the year.
Devin reported net income of $137,000 for 2012. Bauerly decided to use the equity
method to account for the investment. What is the non-controlling interest's share of
Devin's net income for 2012?
A.
B.
C.
D.
E.
$41,100.
$33,600.
$21,600.
$45,600.
$36,600.
14. Chain Co. owned all of the voting common stock of Shannon Corp. The corporations'
balance sheets dated December 31, 2012, include the following balances for land: for
Chain--$416,000, and for Shannon-$256,000. On the original date of acquisition, the
book value of Shannon's land was equal to its fair value. On April 4, 2013, Chain sold
to Shannon a parcel of land with a book value of $65,000. The selling price was
$83,000. There were no other transactions which affected the companies' land
accounts during 2012. What is the consolidated balance for land on the 2013 balance
sheet?
A.
B.
C.
D.
E.
$672,000.
$690,000.
$755,000.
$737,000.
$654,000.
15. Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of
inventory to Gibson. The sales, which include a markup over cost of 25%, were
$420,000 in 2012 and $500,000 in 2013. At the end of each year, Gibson still owned
30% of the goods. Net income for Sparis was $912,000 during 2013. What was the
non-controlling interest's share of Sparis' net income for 2013?
A.
B.
C.
D.
E.
$85,680.
$90,600.
$90,720.
$91,680.
$91,800.
5-5
16. On January 1, 2013, Payton Co. sold equipment to its subsidiary, Starker Corp., for
$115,000. The equipment had cost $125,000, and the balance in accumulated
depreciation was $45,000. The equipment had an estimated remaining useful life of
eight years and $0 salvage value. Both companies use straight-line depreciation. On
their separate 2013 income statements, Payton and Starker reported depreciation
expense of $84,000 and $60,000, respectively. The amount of depreciation expense
on the consolidated income statement for 2013 would have been
A.
B.
C.
D.
E.
$144,000.
$148,375.
$109,000.
$134,000.
$139,625.
17. Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on
January 1, 2013. During the year, Yukon made sales of inventory to Ontario. The
inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had
$60,000 of the goods in its inventory at the end of the year. The amount of unrealized
intra-entity profit that should be eliminated in the consolidation process at the end of
2013 is
A.
B.
C.
D.
E.
$15,000.
$20,000.
$32,500.
$30,000.
$110,000.
18. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2013, Kile sold
merchandise to Prince for $140,000. At December 31, 2013, 50% of this merchandise
remained in Prince's inventory. For 2013, gross profit percentages were 30% of sales
for Prince and 40% of sales for Kile. The amount of unrealized intra-entity profit in
ending inventory at December 31, 2013 that should be eliminated in the
consolidation process is
A.
B.
C.
D.
E.
$28,000.
$56,000.
$22,400.
$21,000.
$42,000.
5-6
19. Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported sales
of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had
sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for
$140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same
markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as
inventory at the end of 2013. What are consolidated sales and cost of goods sold for
2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $966,000.
$1,540,000 and $1,078,000.
$1,400,000 and $1,022,000.
$1,540,000 and $1,092,000.
Included in the amounts for Skillet's sales were Skillet's sales of merchandise to Pot
for $140,000. There were no sales from Pot to Skillet. Intra-entity sales had the same
markup as sales to outsiders. Pot still had 40% of the intra-entity sales as inventory
at the end of 2013. What are consolidated sales and cost of goods sold for 2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $966,000.
$1,540,000 and $1,078,000.
$1,400,000 and $974,400.
$1,540,000 and $1,092,000.
Included in the amounts for Pot's sales were Pot's sales for merchandise to Skillet for
$140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same
markup as sales to outsiders. Skillet had resold all of the intra-entity purchases from
Pot to outside parties during 2013. What are consolidated sales and cost of goods
sold for 2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $1,092,000.
$1,540,000 and $952,000.
$1,400,000 and $1,232,000.
$1,540,000 and $1,092,000.
5-7
22. Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January
1, 2011, Dalton acquired a building with a ten-year life for $420,000. No salvage
value was anticipated and the building was to be depreciated on the straight-line
basis. On January 1, 2013, Dalton sold this building to Shrugs for $392,000. At that
time, the building had a remaining life of eight years but still no expected salvage
value. In preparing financial statements for 2013, how does this transfer affect the
calculation of Dalton's share of consolidated net income?
A. Consolidated net income must be reduced by $44,800.
B. Consolidated net income must be reduced by $50,400.
C. Consolidated net income must be reduced by $49,000.
D. Consolidated net income must be reduced by $56,000.
E. Consolidated net income must be reduced by $34,300.
5-8
23. On January 1, 2013, Pride, Inc. acquired 80% of the outstanding voting common stock
of Strong Corp. for $364,000. There is no active market for Strong's stock. Of this
payment, $28,000 was allocated to equipment (with a five-year life) that had been
undervalued on Strong's books by $35,000. Any remaining excess was attributable to
goodwill which has not been impaired.
As of December 31, 2013, before preparing the consolidated worksheet, the financial
statements appeared as follows:
During 2013, Pride bought inventory for $112,000 and sold it to Strong for $140,000.
Only half of this purchase had been paid for by Strong by the end of the year. 60% of
these goods were still in the company's possession on December 31, 2013.
What is the total of consolidated revenues?
A.
B.
C.
D.
E.
$700,000.
$644,000.
$588,000.
$560,000.
$840,000.
5-9
What is the total of consolidated operating expenses?
A.
B.
C.
D.
E.
$42,000.
$47,600.
$53,200.
$49,000.
$35,000.
5-10
What is the total of consolidated cost of goods sold?
A.
B.
C.
D.
E.
$196,000.
$212,800.
$184,800.
$203,000.
$168,000.
5-11
What is the consolidated total of non-controlling interest appearing in the balance
sheet?
A.
B.
C.
D.
E.
$100,800.
$97,440.
$93,800.
$120,400.
$117,040.
5-12
What is the consolidated total for equipment (net) at December 31, 2013?
A.
B.
C.
D.
E.
$952,000.
$1,058,400.
$1,069,600.
$1,064,000.
$1,066,800.
5-13
What is the consolidated total for inventory at December 31, 2013?
A.
B.
C.
D.
E.
$336,000.
$280,000.
$364,000.
$347,200.
$349,300.
5-14
29. Strickland Company sells inventory to its parent, Carter Company, at a profit during
2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2012, which of the following choices would be a
debit entry to eliminate the intra-entity transfer of inventory?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Investment in Strickland Company.
Sales.
credit entry to eliminate the intra-entity transfer of inventory?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
debit entry to eliminate unrealized intra-entity gross profit with regard to the 2012
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
5-15
credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
In the consolidation worksheet for 2013, assuming Carter uses the initial value
method of accounting for its investment in Strickland, which of the following choices
would be a debit entry to eliminate unrealized intra-entity gross profit with regard to
the 2012 intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
method of accounting for its investment in Strickland, which of the following choices
would be a credit entry to eliminate unrealized intra-entity gross profit with regard to
the 2012 intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
5-16
35. Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during
2012. One-third of the inventory is sold by Walsh uses the equity method to account
for its investment in Fisher.
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Investment in Fisher Company.
Sales.
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
5-17
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
5-18
41. When comparing the difference between an upstream and downstream transfer of
inventory, and using the initial value method, which of the following statements is
true when there is a non-controlling interest?
A. Income from subsidiary will be lower by the amount of the ending inventory profit
multiplied by the non-controlling interest percentage for downstream transfers.
B. Income from subsidiary will be higher by the amount of the ending inventory profit
multiplied by the non-controlling interest percentage for downstream transfers.
C. Income from subsidiary will be reduced for downstream ending inventory profit but
not for upstream profit, before the effect of the non-controlling interest.
D. Income from subsidiary will be reduced for upstream ending inventory profit but
not for downstream profit, before the effect of the non-controlling interest.
E. Income from subsidiary will be the same for upstream and downstream profit.
42. When comparing the difference between an upstream and downstream transfer of
A. Income from subsidiary will be lower by the amount of the beginning inventory
profits multiplied by the non-controlling interest percentage for upstream transfers.
B. Income from subsidiary will be higher by the amount of the beginning inventory
profits multiplied by the non-controlling interest percentage for upstream transfers.
C. Income from subsidiary will be reduced for downstream ending inventory profits
but not for upstream profits, before the non-controlling interest.
D. Income from subsidiary will be reduced for upstream ending inventory profits but
not for downstream profits, before the non-controlling interest.
E. Income from subsidiary will be the same for upstream and downstream profits.
5-19
43. Which of the following statements is true regarding inventory transfers between a
parent and its subsidiary, using the initial value method?
A. The sale of merchandise between a parent and its subsidiary represents an arm'slength transaction and thus provides the basis for the recognition of profit on such
transfers.
B. Profits on upstream transfers associated with the parent's ending inventory are
subtracted from subsidiary net income for the current year in the calculation of
parent's income from subsidiary. These year-end deferrals are then added to next
year's subsidiary net income in the calculation of parent's income from subsidiary.
This procedure is inappropriate because all the intra-entity transactions unsold at
year-end may not be sold in the next year.
C. Profits on upstream transfers associated with the parent's ending inventory are
parent's income from subsidiary. These year-end deferrals are then added to next
year's subsidiary net income in the calculation of parent's income from subsidiary.
This procedure is appropriate even if all the intra-entity transactions unsold at
year-end may not be sold in the next year.
D. Merchandise transfers from a parent to its subsidiary that have not been sold to
unaffiliated parties should be included in consolidated inventory at their transfer
price.
E. Non-controlling interest in subsidiary's net income should not be reduced for
upstream or downstream ending inventory profits.
44. Which of the following statements is true regarding an intra-entity sale of land?
A. A loss is always recognized but a gain is eliminated in a consolidated income
statement.
B. A loss and a gain are always eliminated in a consolidated income statement.
C. A loss and a gain are always recognized in a consolidated income statement.
D. A gain is always recognized but a loss is eliminated in a consolidated income
statement.
E. A gain or loss is eliminated by adjusting stockholders' equity through
comprehensive income.
45. Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land
externally for a gain in 2013. Which of the following statements is true?
A. A gain will be reported in the consolidated income statement in 2010.
B. A gain will be reported in the consolidated income statement in 2013.
C. No gain will be reported in the 2013 consolidated income statement.
D. Only the parent company will report a gain in 2013.
E.
The subsidiary will report a gain in 2010.
5-20
46. An intra-entity sale took place whereby the transfer price exceeded the book value of
a depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to gain for a downstream transfer.
B. A worksheet entry is made with a debit to gain for an upstream transfer.
C. A worksheet entry is made with a debit to investment in subsidiary for a
downstream transfer when the parent uses the equity method.
D. A worksheet entry is made with a debit to retained earnings for a downstream
transfer, regardless of the method used account for the investment.
E.
No worksheet entry is necessary.
47. An intra-entity sale took place whereby the book value exceeded the transfer price of
a depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to retained earnings for an upstream
transfer.
B. A worksheet entry is made with a credit to retained earnings for an upstream
transfer.
C. A worksheet entry is made with a debit to retained earnings for a downstream
transfer.
D. A worksheet entry is made with a debit to investment in subsidiary for a
downstream transfer.
E.
48. An intra-entity sale took place whereby the transfer price was less than the book
value of a depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to investment in subsidiary for an
upstream transfer.
B. A worksheet entry is made with a debit to investment in subsidiary for a
C. A worksheet entry is made with a credit to investment in subsidiary for a
D. A worksheet entry is made with a debit to retained earnings for an upstream
transfer, regardless of the method used to account for the investment.
E.
5-21
49. Which of the following statements is true concerning an intra-entity transfer of a

depreciable asset?
A. Non-controlling interest in subsidiary's net income is never affected by a gain on
the transfer.
B. Non-controlling interest in subsidiary's net income is always affected by a gain on
the transfer.
C. Non-controlling interest in subsidiary's net income is affected by a downstream
gain only.
D. Non-controlling interest in subsidiary's net income is affected only when the
transfer is upstream.
E. Non-controlling interest in subsidiary's net income is increased by an upstream
gain in the year of transfer.
50. Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to
Posito at a 25% profit on selling price. The following data are available pertaining to
intra-entity purchases. Gargiulo was acquired on January 1, 2012.
Assume the equity method is used. The following data are available pertaining to
Gargiulo's income and dividends.
Compute the equity in earnings of Gargiulo reported on Posito's books for 2012.
A.
B.
C.
D.
E.
$63,000.
$62,730.
$63,270.
$70,000.
$62,700.
5-22
A.
B.
C.
D.
E.
$76,500.
$77,130.
$75,870.
$75,600.
$75,800.
A.
B.
C.
D.
E.
$84,600.
$84,375.
$83,925.
$84,825.
$84,850.
5-23
Compute the non-controlling interest in Gargiulo's net income for 2012.

A.
B.
C.
D.
E.
$6,970.
$7,000.
$7,030.
$6,270.
$6,230.

A.
B.
C.
D.
E.
$8,500.
$8,570.
$8,430.
$8,400.
$7,580.
5-24

A.
B.
C.
D.
E.
$9,400.
$9,375.
$9,425.
$9,325.
$8,485.
5-25
For consolidation purposes, what amount would be debited to cost of goods sold for
the 2012 consolidation worksheet with regard to unrealized gross profit of the intraentity transfer of merchandise?
A.
B.
C.
D.
E.
$300.
$240.
$2,000.
$1,600.
$270.
5-26
the 2013 consolidation worksheet with regard to the unrealized gross profit of the
2013 intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$1,000.
$800.
$3,000.
$2,400.
$900.
5-27
the 2014 consolidation worksheet with regard to the unrealized gross profit of the
2014 intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$600.
$750.
$3,760.
$3,000.
$675.
5-28
For consolidation purposes, what amount would be debited to January 1 retained

earnings for the 2012 consolidation worksheet entry with regard to the unrealized
gross profit of the 2012 intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$0.
$1,600.
$300.
$240.
$270.
5-29

A.
B.
C.
D.
E.
$240.
$300.
$2,000.
$1,600.
$270.
5-30

A.
B.
C.
D.
E.
$3,000.
$2,400.
$1,000.
$800.
$900.
62. Patti Company owns 80% of the common stock of Shannon, Inc. In the current year,
Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same
period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During
the year, Patti sold merchandise to Shannon for $60,000 at a price based on the
normal markup. At the end of the year, Shannon still possesses 30 percent of this
inventory.
Compute consolidated sales.
A.
B.
C.
D.
E.
$10,000,000.
$10,126,000.
$10,140,000.
$10,200,000.
$10,260,000.
5-31
inventory.
Compute consolidated cost of goods sold.
A.
B.
C.
D.
E.
$7,500,000.
$7,600,000.
$7,615,000.
$7,604,500.
$7,660,000.
inventory.
Assume the same information, except Shannon sold inventory to Patti. Compute
consolidated sales.
A.
B.
C.
D.
E.
$10,000,000.
$10,126,000.
$10,140,000.
$10,200,000.
$10,260,000.
5-32
65. Wilson owned equipment with an estimated life of 10 years when it was acquired for
an original cost of $80,000. The equipment had a book value of $50,000 at January 1,
2012. On January 1, 2012, Wilson realized that the useful life of the equipment was
longer than originally anticipated, at ten remaining years.
On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company,
bought the equipment from Wilson for $68,250 and for depreciation purposes used
the estimated remaining life as of that date. The following data are available
pertaining to Simon's income and dividends:
Compute the gain on transfer of equipment reported by Wilson for 2012.

A.
B.
C.
D.
E.
$19,500.
$18,250.
$11,750.
$38,250.
$37,500.
Compute the amortization of gain through a depreciation adjustment for 2012 for
consolidation purposes.
A.
B.
C.
D.
E.
$1,950.
$1,825.
$1,500.
$2,000.
$5,250.
5-33
A.
B.
C.
D.
E.
$1,950.
$1,825.
$2,000.
$1,500.
$7,000.
A.
B.
C.
D.
E.
$1,925.
$1,825.
$2,000.
$1,500.
$7,000.
5-34
Compute Wilson's share of income from Simon for consolidation for 2012.
A.
B.
C.
D.
E.
$72,000.
$90,000.
$73,575.
$73,800.
$72,500.
A.
B.
C.
D.
E.
$108,000.
$110,000.
$106,000.
$109,825.
$109,800.
5-35
A.
B.
C.
D.
E.
$118,825.
$115,000.
$117,000.
$119,000.
$118,800.
72. On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc.
transferred equipment with a 10-year life (six of which remain with no salvage value)
to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records
carried the equipment at a cost of $120,000 less accumulated depreciation of
$48,000. Straight-line depreciation is used. Smeder reported net income of $28,000
and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity
transfer are attributed to the seller for consolidation purposes.
Compute the gain recognized by Smeder Company relating to the equipment for
2012.
A.
B.
C.
D.
E.
$36,000.
$34,000.
$12,000.
$10,000.
$0.
5-36
Compute Collins' share of Smeder's net income for 2012.
A.
B.
C.
D.
E.
$12,400.
$14,400.
$11,200.
$12,800.
$18,000.
A.
B.
C.
D.
E.
$27,600.
$23,600.
$27,200.
$24,000.
$34,000.
For consolidation purposes, what net debit or credit will be made for the year 2012
relating to the accumulated depreciation for the equipment transfer?
A.
B.
C.
D.
E.
Debit accumulated depreciation, $46,000.

Credit accumulated depreciation, $48,000.
5-37
What is the net effect on consolidated net income in 2012 due to the equipment
transfer?
A.
B.
C.
D.
E.
Increase $2,000.
Decrease $12,000.
Decrease $10,000.
Decrease $14,000.
Increase $10,000.
77. Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo
on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller reported
net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the
equity method to account for its investment.
Compute the gain or loss on the intra-entity sale of land.
A.
B.
C.
D.
E.
$15,000 loss.
$15,000 gain.
$50,000 loss.
$50,000 gain.
$65,000 gain.
On a consolidation worksheet, what adjustment would be made for 2012 regarding
the land transfer?
A.
B.
C.
D.
E.
Debit gain for $50,000.

Credit gain for $50,000.
Debit land for $15,000.
Credit land for $15,000.
5-38
On a consolidation worksheet, having used the equity method, what adjustment
would be made for 2013 regarding the land transfer?
A.
B.
C.
D.
E.
Debit retained earnings for $15,000.

Credit retained earnings for $15,000.
Debit investment in Stiller for $15,000.
Compute income from Stiller on Leo's books for 2012.
A.
B.
C.
D.
E.
$110,000.
$100,000.
$125,000.
$85,000.
$88,000.
A.
B.
C.
D.
E.
$140,000.
$97,000.
$125,000.
$100,000.
$112,000.
5-39
82. Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1,
2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income
of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker
sold the land purchased from Stark in 2012 for $92,000 in 2014.
A.
B.
C.
D.
E.
$80,000 gain.
$80,000 loss.
$5,000 gain.
$5,000 loss.
$85,000 loss.
Which of the following will be included in a consolidation entry for 2012?
A.
B.
C.
D.
E.
Debit loss for $5,000.

Credit loss for $5,000.
A.
B.
C.
D.
E.

Debit investment in subsidiary for $5,000.
Credit investment in subsidiary for $5,000.
5-40
Compute income from Stark reported on Parker's books for 2012.
A.
B.
C.
D.
E.
$205,000.
$200,000.
$180,000.
$175,500.
$184,500.
A.
B.
C.
D.
E.
$185,000.
$157,500.
$166,500.
$162,000.
$180,000.
Compute Parker's reported gain or loss relating to the land for 2014.
A.
B.
C.
D.
E.
$12,000 gain.
$5,000 loss.
$12,000 loss.
$7,000 gain.
$7,000 loss.
5-41
Compute Stark's reported gain or loss relating to the land for 2014.
A.
B.
C.
D.
E.
$5,000 loss.
$5,000 gain.
$7,000 loss.
$7,000 gain.
$0.
Compute the gain or loss relating to the land that will be reported in consolidated net
income for 2014.
A.
B.
C.
D.
E.
$5,000 loss.
$7,000 gain.
$12,000 gain.
$7,000 loss.
$12,000 loss.
A.
B.
C.
D.
E.
$204,300.
$202,500.
$193,500.
$191,700.
$198,000.
5-42
91. Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that date
Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
What is the gain or loss on equipment reported by Devin for 2012?
A.
B.
C.
D.
E.
$54,000 gain.
$21,000 loss.
$21,000 gain.
$9,000 loss.
$9,000 gain.
What is the consolidated gain or loss on equipment for 2012?
A.
B.
C.
D.
E.
$0.
$9,000 gain.
$9,000 loss.
$21,000 gain.
$21,000 loss.
Compute the income from Devin reported on Pepe's books for 2012.
A.
B.
C.
D.
E.
$174,600.
$184,800.
$172,000.
$171,000.
$180,000.
5-43
A.
B.
C.
D.
E.
$190,200.
$196,000.
$194,400.
$187,000.
$195,000.
Compute the non-controlling interest in the net income of Devin for 2012.
A.
B.
C.
D.
E.
$116,400.
$120,400.
$120,000.
$123,200.
$112,000.
A.
B.
C.
D.
E.
$126,800.
$130,000.
$122,000.
$130,800.
$129,600.
Essay Questions
5-44
97. For each of the following situations (1 - 10), select the correct entry (A - E) that would
be required on a consolidation worksheet.
(A.) Debit retained earnings.
(B.) Credit retained earnings.
(C.) Debit investment in subsidiary.
(D.) Credit investment in subsidiary.
(E.) None of the above.
___ 1. Upstream beginning inventory profit, using the initial value method.
___ 2. Downstream beginning inventory profit, using the initial value method.
___ 3. Upstream ending inventory profit, using the initial value method.
___ 4. Downstream ending inventory profit, using the initial value method.
___ 5. Upstream transfer of depreciable assets, in the period after transfer, where
subsidiary recognizes a gain, using the initial value method.
___ 6. Downstream transfer of depreciable assets, in the period after transfer, where
parent recognizes a gain, using the initial value method.
___ 7. Upstream transfer of land, in the period after transfer, where subsidiary
recognizes a loss, using the initial value method.
___ 8. Downstream transfer of land, in the period after transfer, where parent
___ 9. Eliminate income from subsidiary, recorded under the equity method.
___ 10. Eliminate recorded amortization of acquisition fair value over book value,
recorded under the equity method.
98. On April 7, 2013, Pate Corp. sold land to Shannahan Co., its subsidiary. From a
consolidated point of view, when will the gain on this transfer actually be earned?
5-45
99. Throughout 2013, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From a
consolidated point of view, when will the gain on this transfer be earned?
100 Varton Corp. acquired all of the voting common stock of Caleb Co. on January 1,
.
2013. Varton owned some land with a book value of $84,000 that was sold to Caleb
for its fair value of $120,000. How should this transaction be accounted for by the
consolidated entity?
101 During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp.
.
Forsyth still owned the entire inventory purchased at the end of 2013. Why must the
gross profit on the sale be deferred when consolidated financial statements are
prepared at the end of 2013?
5-46
102 How does a gain on an intra-entity sale of equipment affect the calculation of a non.
controlling interest?
103 How do upstream and downstream inventory transfers differ in their effect in a year.
end consolidation?
104 How is the gain on an intra-entity transfer of a depreciable asset realized?

.
105 Dithers Inc. acquired all of the common stock of Bumstead Corp. on January 1, 2013.
.
During 2013, Bumstead sold land to Dithers at a gain. No consolidation entry for the
sale of the land was made at the end of 2013. What errors will this omission cause in
the consolidated financial statements?
5-47
106 Why do intra-entity transfers between the component companies of a business

.
combination occur so frequently?
107 Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards'
.
inventory in 2013. The transfer price was equal to 30 percent of the sales price.
When preparing consolidated financial statements, what amount of these sales is
eliminated?
108 What is meant by unrealized inventory gains, and how are they treated on a
.
consolidation worksheet?
5-48
109 What is the impact on the non-controlling interest of a subsidiary when there are
.
downstream transfers of inventory between the parent and subsidiary companies?
110 When is the gain on an intra-entity transfer of land realized?

.
111 What is the purpose of the adjustments to depreciation expense within the
.
consolidation process when there has been an intra-entity transfer of a depreciable
asset?
Short Answer Questions
5-49
112 Tara Company owns 80 percent of the common stock of Stodd Inc. In the current
.
year, Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000. For the
same period, Stodd has sales of $500,000 and cost of goods sold of $400,000. During
the year, Stodd sold merchandise to Tara for $40,000 at a price based on the normal
markup. At the end of the year, Tara still possesses 20 percent of this inventory.
Prepare the consolidation entry to defer the unrealized gain.
113 King Corp. owns 85% of James Co. King uses the equity method to account for this
.
investment. During 2015, King sells inventory to James for $500,000. The inventory
originally cost King $420,000. At 12/31/15, 25% of the goods were still in James'
inventory.
Required:
Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation
worksheet.
5-50
114 Flintstone Inc. acquired all of Rubble Co. on January 1, 2013. Flintstone decided to
.
use the initial value method to account for this investment. During 2013, Flintstone
sold to Rubble for $600,000 inventory with a cost of $500,000. At the end of the year
30% of the goods were still in Rubble's inventory.
Required:
Prepare Consolidation Entry TI for the intra-entity transfer and Consolidation Entry G
for the ending inventory adjustment necessary for the consolidation worksheet at
12/31/15.
115 Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near the
.
end of 2013. The goods had cost Yoderly $105,000 and the selling price was
$140,000. Nelson had not sold any of the goods by the end of the year.
Required:
Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2013.
5-51
116 Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the
.
initial value method to account for this investment. During 2013, Strayten sold Quint
goods which had cost $48,000. The selling price was $64,000. Quint still had oneeighth of the goods purchased from Strayten on hand at the end of 2013.
Required:
Prepare Consolidation Entry *G, which would have to be recorded at the end of 2013.
117 Hambly Corp. owned 80% of the voting common stock of Stroban Co. During 2013,
.
Stroban sold a parcel of land to Hambly. The land had a book value of $82,000 and
was sold to Hambly for $145,000. Stroban's reported net income for 2013 was
$119,000.
Required:
What was the non-controlling interest's share of Stroban Co.'s net income?
5-52
118 McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler
.
Co. During 2013, Ritter sold inventory to Lawler. The goods had cost Ritter $65,000,
and they were sold to Lawler for $100,000. At the end of 2013, Lawler still held 30%
of the inventory.
Required:
How should the sale between Lawler and Ritter be accounted for in a consolidation
worksheet? Show worksheet entries to support your answer.
119 Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies
.
use the perpetual inventory method, and Virginia decided to use the partial equity
method to account for this investment. During 2012, Virginia made cash sales of
$400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end
of 2012, Stateside had sold 75% of the goods to outside parties for $420,000 cash.
Prepare journal entries for Virginia and Stateside to record the sales/purchases during
2012.
5-53
.
Prepare the consolidation entries that should be made at the end of 2012.
.
Prepare any 2013 consolidation worksheet entries that would be required regarding
the 2012 inventory transfer.
5-54
122 Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values
.
of Icecap's asset and liability accounts at that time were considered to be equal to
their fair values. Polar's acquisition value corresponded to the underlying book value
of Icecap so that no allocations or goodwill resulted from the transaction.
The following selected account balances were from the individual financial records of
these two companies as of December 31, 2013:
Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intraentity transfers were $130,000 in 2012 and $165,000 in 2013. Of this inventory,
$39,000 of the 2012 transfers were retained and then sold by Icecap in 2013, while
$55,000 of the 2013 transfers were held until 2014.
Required:
For the consolidated financial statements for 2013, determine the balances that
would appear for the following accounts: (1) Cost of Goods Sold, (2) Inventory, and
(3) Non-controlling Interest in Subsidiary's Net Income.
5-55
.
Assume that Icecap sold inventory to Polar at a markup equal to 25% of cost. Intraentity transfers were $70,000 in 2012 and $112,000 in 2013. Of this inventory,
$29,000 of the 2012 transfers were retained and then sold by Polar in 2013, whereas
$49,000 of the 2013 transfers were held until 2014.
Required:
5-56
.
Polar sold a building to Icecap on January 1, 2012 for $112,000, although the book
value of this asset was only $70,000 on that date. The building had a five-year
remaining useful life and was to be depreciated using the straight-line method with
no salvage value.
Required:
would appear for the following accounts: (1) Buildings (net), (2) Operating expenses,
and (3) Non-controlling Interest in Subsidiary's Net Income.
5-57
125 On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned
.
subsidiary) for $168,000 in cash. The equipment originally cost $140,000 but had a
book value of only $98,000 when transferred. On that date, the equipment had a
five-year remaining life. Depreciation expense was calculated using the straight-line
method.
Musial earned $308,000 in net income in 2013 (not including any investment
income) while Matin reported $126,000. Assume there is no amortization related to
the original investment.
What is consolidated net income for 2013?
.
method.
Assuming that Musial owned only 90% of Matin, what is consolidated net income for
2013?
5-58
.
method.
Prepare a schedule of consolidated net income and the share to controlling and noncontrolling interests for 2013, assuming that Musial owned only 90% of Matin and the
equipment transfer had been upstream
5-59
Chapter 05 Consolidated Financial Statements-Intra-Entity

Asset Transactions Answer Key
Multiple Choice Questions

1.
On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned
subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the
perspective of the combination, when is the gain on the sale of the land realized?
A.
B.
C.
D.
E.
Proportionately over a designated period of years.

When Wood Co. sells the land to a third party.
No gain can be recognized.
As Wood uses the land.
When Wood Co. begins using the land productively.
AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-06 Prepare the consolidation entry to remove any unrealized gain created by the intraentity transfer of land from the accounting records of the year of transfer and subsequent years.
Topic: Intra-Entity Land Transfers
5-60
2.
Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar
made several sales of inventory to Stendall. The cost and selling price of the goods
were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the
goods at the end of 2013. Consolidated cost of goods sold for 2013 was
$2,140,000 because of a consolidating adjustment for intra-entity sales less the
entire profit remaining in Stendall's ending inventory.
How would consolidated cost of goods sold have differed if the inventory transfers
had been for the same amount and cost, but from Stendall to Edgar?
A. Consolidated cost of goods sold would have remained $2,140,000.
B. Consolidated cost of goods sold would have been more than $2,140,000
because of the controlling interest in the subsidiary.
C. Consolidated cost of goods sold would have been less than $2,140,000 because
of the non-controlling interest in the subsidiary.
D. Consolidated cost of goods sold would have been more than $2,140,000
because of the non-controlling interest in the subsidiary.
E. The effect on consolidated cost of goods sold cannot be predicted from the
information provided.
$2,140,000 COGS unaffected by Consolidated Ending Inventory value
AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 05-05 Explain the difference between upstream and downstream intra-entity transfers and
how each affects the computation of noncontrolling interest balances.
Topic: Unrealized Gross Profit-Effect on Noncontrolling Interest
5-61
3.
Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar
made several sales of inventory to Stendall. The cost and selling price of the goods
were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the
goods at the end of 2013. Consolidated cost of goods sold for 2013 was
$2,140,000 because of a consolidating adjustment for intra-entity sales less the
entire profit remaining in Stendall's ending inventory.
How would non-controlling interest in net income have differed if the transfers had
been for the same amount and cost, but from Stendall to Edgar?
A.
B.
C.
D.
E.

$200,000 Revenue - $140,000 COGS = $60,000 Profit on Intra-Entity Sales 25%

still in Ending Inventory = $15,000 Adjustment to Net Income 40% for Noncontrolling Interest = $6,000 reduction in Net Income for the Non-Controlling
Interest.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-03 Explain why consolidated entities defer intra-entity gross profit in ending inventory
and the consolidation procedures required to recognize profits when actually earned.
Topic: All Inventory Remains at Year-End
4.
On January 1, 2013, Race Corp. acquired 80% of the voting common stock of
Gallow Inc. During the year, Race sold to Gallow for $450,000 goods which cost
$330,000. Gallow still owned 15% of the goods at year-end. Gallow's reported net
income was $204,000, and Race's net income was $806,000. Race decided to use
the equity method to account for this investment. What was the non-controlling
interest's share of consolidated net income?
A.
B.
C.
D.
E.
$3,600.
$22,800.
$30,900.
$32,900.
$40,800.
Sub's Net Income $204,000 .20 = $40,800

AACSB: Analytic
5-62
Blooms: Apply
Difficulty: 1 Easy
5.
Webb Co. acquired 100% of Rand Inc. on January 5, 2013. During 2013, Webb sold
goods to Rand for $2,400,000 that cost Webb $1,800,000. Rand still owned 40% of
the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb
and $6,400,000 for Rand. What was consolidated cost of goods sold?
A.
B.
C.
D.
E.
$17,200,000.
$15,040,000.
$14,800,000.
$15,400,000.
$14,560,000.
Intra-entity gross profit ($2,400,000 - $1,800,000) $600,000 Inventory remaining

at year's end 40% = $240,000
Consolidated COGS = Parents COGS $10,800,000 + Sub's COGS $6,400,000 - Total
Intra-Entity Transfer $2,400,000 + Deferred Unrealized Profit $240,000 =
$15,040,000
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-02 Demonstrate the consolidation procedures to eliminate intra-entity sales and
purchases balances.
Topic: The Sales and Purchases Accounts
5-63
6.
Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012,
Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard
Farms still owned 12% of the goods at the end of the year. In 2013, Gentry sold
goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard
Farms still owned 10% of the goods at year-end. For 2013, cost of goods sold was
$5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated
cost of goods sold for 2013?
A.
B.
C.
D.
E.
$6,600,000.
$6,604,000.
$5,620,000.
$5,596,000.
$5,625,000.
Intra-entity gross profit ($1,000,000 - $800,000) $200,000 Inventory remaining

at year's end 10% = $20,000
Consolidated COGS = Parents COGS $5,400,000 + Sub's COGS $1,200,000 - Total
Intra-Entity Transfer $1,000,000 - Recognize Deferred Gross Profit from 2012
$24,000 + Deferred Unrealized Profit from 2013 $20,000 = $5,596,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
purchases balances.
Learning Objective: 05-04 Understand that the consolidation process for inventory transfers is designed to
defer the unrealized portion of an intra-entity gross profit from the year of transfer into the year of disposal or
consumption.
Topic: Unrealized Gross Profit-Year Following Transfer (Year 2)
7.
X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2013,
Kent made several sales of inventory to X-Beams. The total selling price was
$180,000 and the cost was $100,000. At the end of the year, 20% of the goods
were still in X-Beams' inventory. Kent's reported net income was $300,000. What
was the non-controlling interest in Kent's net income?
A.
B.
C.
D.
E.
$90,000.
$85,200.
$54,000.
$94,800.
$86,640.
Sub's Net Income $300,000 - Deferred Unrealized Profit $16,000 = $284,000

Non-Controlling Interest 30% = $85,200 Non-Controlling Interest in Net Income
AACSB: Analytic
5-64
Blooms: Apply
8.
Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land
with a book value of $48,000. The selling price was $70,000. In its accounting
records, Justings should
A. not recognize a gain on the sale of the land since it was made to a related
party.
B.
C. defer recognition of the gain until Evana sells the land to a third party.
D.
E.
Sales Price $70,000 - BV $48,000 = Gain on Sale $22,000
AACSB: Analytic
Blooms: Apply
9.
Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2,
2012, Thelma sold a parcel of land to Norek. The land had a book value of $32,000
and was sold to Norek for $45,000. Thelma's reported net income for 2012 was
$119,000. What is the non-controlling interest's share of Thelma's net income?
A.
B.
C.
D.
E.
$35,700.
$31,800.
$39,600.
$22,200.
$26,100.
Sales Price $45,000 - BV $32,000 = Gain on Sale $13,000

Sub's Net Income $119,000 - Gain on Sale $13,000 = Adjusted Net Income
$106,000 Sub's Interest 30% = $31,800
AACSB: Analytic
Blooms: Apply
5-65
10.
Clemente Co. owned all of the voting common stock of Snider Co. On January 2,
Clemente $140,000. At the time of the sale, the balance in accumulated
depreciation was $40,000. The equipment had a remaining useful life of five years
and a $0 salvage value. Straight-line depreciation is used by both Clemente and
Snider.
A.
B.
C.
D.
E.
$105,000.
$100,000.
$95,000.
$80,000.
$85,000.
Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is Ignored

Equipment is transferred at BV (Cost $140,000 - Acc. Deprec. $40,000) $100,000 Deprec. For 2012 ($100,000/5) $20,000 = $80,000 BV at 12/31/2012
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-07 Prepare the consolidation entries to remove the effects of upstream and
downstream intra-entity fixed asset transfers across affiliated entities.
Topic: Intra-Entity Transfer of Depreciable Assets
5-66
11.
Clemente Co. owned all of the voting common stock of Snider Co. On January 2,
Clemente $140,000. At the time of the sale, the balance in accumulated
depreciation was $40,000. The equipment had a remaining useful life of five years
and a $0 salvage value. Straight-line depreciation is used by both Clemente and
Snider.
A.
B.
C.
D.
E.
$110,000.
$105,000.
$100,000.
$90,000.
$60,000.
Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is Ignored

Equipment is transferred at BV (Cost $140,000 - Acc. Deprec. $40,000) $100,000 Deprec. For 2012 & 2013 ($100,000/5) $40,000 = $60,000 BV at 12/31/2013
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
12.
During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The
inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of
the combination, when is the $14,000 gain realized?
A.
When the goods are sold to a third party by Lord.
B.
When Lord pays Von for the goods.
C.
When Von sold the goods to Lord.
D.
When the goods are used by Lord.
E. No gain can be recognized since the transaction was between related parties.

Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-01 Understand why intra-entity asset transfers create accounting effects within the
financial records of affiliated companies that must be eliminated or adjusted in preparing consolidated financial
statements.
Topic: Intra-Entity Inventory Transactions
5-67
13.
Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2012,
Devin made frequent sales of inventory to Bauerly. There were unrealized gains of
$40,000 in the beginning inventory and $25,000 of unrealized gains at the end of
the year. Devin reported net income of $137,000 for 2012. Bauerly decided to use
the equity method to account for the investment. What is the non-controlling
interest's share of Devin's net income for 2012?
A.
B.
C.
D.
E.
$41,100.
$33,600.
$21,600.
$45,600.
$36,600.
Sub's Net Income $137,000 + Deferred Realized Gains $40,000 - Deferred

Unrealized gains $25,000 = $152,000 Non-Controlling Interest 30% = $45,600
Non-Controlling Interest in Net Income
AACSB: Analytic
Blooms: Apply
consumption.
14.
Chain Co. owned all of the voting common stock of Shannon Corp. The
corporations' balance sheets dated December 31, 2012, include the following
balances for land: for Chain--$416,000, and for Shannon-$256,000. On the original
date of acquisition, the book value of Shannon's land was equal to its fair value.
On April 4, 2013, Chain sold to Shannon a parcel of land with a book value of
$65,000. The selling price was $83,000. There were no other transactions which
affected the companies' land accounts during 2012. What is the consolidated
balance for land on the 2013 balance sheet?
A.
B.
C.
D.
E.
$672,000.
$690,000.
$755,000.
$737,000.
$654,000.
Parent's Land $416,000 + Sub's Land $256,000 = $672,000 - Any gain on the
transfer is deferred until the parcel is sold outside the entity in the future.
AACSB: Analytic
5-68
Blooms: Apply
15.
Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of
inventory to Gibson. The sales, which include a markup over cost of 25%, were
$420,000 in 2012 and $500,000 in 2013. At the end of each year, Gibson still
owned 30% of the goods. Net income for Sparis was $912,000 during 2013. What
was the non-controlling interest's share of Sparis' net income for 2013?
A.
B.
C.
D.
E.
$85,680.
$90,600.
$90,720.
$91,680.
$91,800.
Sub's Net Income $912,000 + Deferred Realized Gains ($420,000/1.25 30%

25%) $25,200 - Deferred Unrealized Gains ($500,000/1.25 30% 25%) $30,000
= $907,200 Non-Controlling Interest 10% = $90,720 Non-Controlling Interest in
Net Income
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
consumption.
5-69
16.
On January 1, 2013, Payton Co. sold equipment to its subsidiary, Starker Corp., for
$115,000. The equipment had cost $125,000, and the balance in accumulated
depreciation was $45,000. The equipment had an estimated remaining useful life
of eight years and $0 salvage value. Both companies use straight-line
depreciation. On their separate 2013 income statements, Payton and Starker
reported depreciation expense of $84,000 and $60,000, respectively. The amount
of depreciation expense on the consolidated income statement for 2013 would
have been
A.
B.
C.
D.
E.
$144,000.
$148,375.
$109,000.
$134,000.
$139,625.
Sales Price $115,000 - BV $80,000 = $35,000 Gain on Sale/8yrs = $4,375 Annual

Amortization of Unrealized Gain over Expected Useful Life of the Asset
Parent's Depreciation $84,000 + Sub's Depreciation $60,000 - Annual amortization
$4,375 = $139,625
AACSB: Analytic
Blooms: Apply
17.
Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on
January 1, 2013. During the year, Yukon made sales of inventory to Ontario. The
inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still
had $60,000 of the goods in its inventory at the end of the year. The amount of
unrealized intra-entity profit that should be eliminated in the consolidation process
at the end of 2013 is
A.
B.
C.
D.
E.
$15,000.
$20,000.
$32,500.
$30,000.
$110,000.
Intra-entity gross profit ($390,000 - $260,000) $130,000 Inventory remaining at

year's end ($60,000/$390,000) = $20,000
AACSB: Analytic
Blooms: Apply
5-70
18.
Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2013, Kile
sold merchandise to Prince for $140,000. At December 31, 2013, 50% of this
merchandise remained in Prince's inventory. For 2013, gross profit percentages
were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized
intra-entity profit in ending inventory at December 31, 2013 that should be
eliminated in the consolidation process is
A.
B.
C.
D.
E.
$28,000.
$56,000.
$22,400.
$21,000.
$42,000.
Intra-entity gross profit ($140,000 .40) $56,000 Inventory remaining at year's

end (50%) = $28,000
AACSB: Analytic
Blooms: Apply
19.
Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported
sales of $1,120,000 and cost of goods sold of $840,000. For this same period,
Skillet had sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet
for $140,000. There were no sales from Skillet to Pot. Intra-entity sales had the
same markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as
inventory at the end of 2013. What are consolidated sales and cost of goods sold
for 2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $966,000.
$1,540,000 and $1,078,000.
$1,400,000 and $1,022,000.
$1,540,000 and $1,092,000.
Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 =

$1,540,000 - Intra-Entity Sales $140,000 = $1,400,000
Consolidated COGS = Parents COGS $840,000 + Sub's COGS $252,000 - Total
Intra-Entity Transfer $140,000 + Deferred Unrealized Profit $14,000 = $966,000
AACSB: Analytic
5-71

Blooms: Apply
purchases balances.
20.
Included in the amounts for Skillet's sales were Skillet's sales of merchandise to
Pot for $140,000. There were no sales from Pot to Skillet. Intra-entity sales had the
same markup as sales to outsiders. Pot still had 40% of the intra-entity sales as
inventory at the end of 2013. What are consolidated sales and cost of goods sold
for 2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $966,000.
$1,540,000 and $1,078,000.
$1,400,000 and $974,400.
$1,540,000 and $1,092,000.

Intra-Entity Transfer $140,000 + Deferred Unrealized Profit $22,400 = $974,400
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
purchases balances.
5-72
21.
Included in the amounts for Pot's sales were Pot's sales for merchandise to Skillet
for $140,000. There were no sales from Skillet to Pot. Intra-entity sales had the
same markup as sales to outsiders. Skillet had resold all of the intra-entity
purchases from Pot to outside parties during 2013. What are consolidated sales
and cost of goods sold for 2013?
A.
B.
C.
D.
E.
$1,400,000 and $952,000.

$1,400,000 and $1,092,000.
$1,540,000 and $952,000.
$1,400,000 and $1,232,000.
$1,540,000 and $1,092,000.

Intra-Entity Transfer $140,000 = $952,000
AACSB: Analytic
Blooms: Apply
purchases balances.
22.
Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On
January 1, 2011, Dalton acquired a building with a ten-year life for $420,000. No
salvage value was anticipated and the building was to be depreciated on the
straight-line basis. On January 1, 2013, Dalton sold this building to Shrugs for
$392,000. At that time, the building had a remaining life of eight years but still no
expected salvage value. In preparing financial statements for 2013, how does this
transfer affect the calculation of Dalton's share of consolidated net income?
A.
B.
C.
D.
E.
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
net
net
net
net
net
income
income
income
income
income
must
must
must
must
must
be
be
be
be
be
reduced
reduced
reduced
reduced
reduced
by
by
by
by
by
$44,800.
$50,400.
$49,000.
$56,000.
$34,300.
Transfer Cost $392,000/8yrs. = $49,000 to record Depreciation and Lowers

Consolidated Net Income
AACSB: Analytic
5-73

Blooms: Apply
5-74
23.
On January 1, 2013, Pride, Inc. acquired 80% of the outstanding voting common
stock of Strong Corp. for $364,000. There is no active market for Strong's stock. Of
this payment, $28,000 was allocated to equipment (with a five-year life) that had
been undervalued on Strong's books by $35,000. Any remaining excess was
attributable to goodwill which has not been impaired.
As of December 31, 2013, before preparing the consolidated worksheet, the
financial statements appeared as follows:
During 2013, Pride bought inventory for $112,000 and sold it to Strong for
$140,000. Only half of this purchase had been paid for by Strong by the end of the
year. 60% of these goods were still in the company's possession on December 31,
2013.
What is the total of consolidated revenues?
A.
B.
C.
D.
E.
$700,000.
$644,000.
$588,000.
$560,000.
$840,000.
Parent's Revenue $420,000 + Sub's Revenue $280,000 - Intra-Entity Sales

$140,000 = $560,000
AACSB: Analytic
Blooms: Apply
5-75
purchases balances.
5-76
24.
2013.
What is the total of consolidated operating expenses?
A.
B.
C.
D.
E.
$42,000.
$47,600.
$53,200.
$49,000.
$35,000.
Parent's Operating Expenses $28,000 + Sub's Operating Expenses $14,000 +

Excess Amortization on Equipment ($35,000/5) $7,000 = $49,000
AACSB: Analytic
Blooms: Apply
5-77
statements.
5-78
25.
2013.
What is the total of consolidated cost of goods sold?
A.
B.
C.
D.
E.
$196,000.
$212,800.
$184,800.
$203,000.
$168,000.

Intra-Entity Transfer $140,000 + Deferred Unrealized Profit ($28,000 .60)
$16,800 = $184,800
AACSB: Analytic
5-79
Blooms: Apply
purchases balances.
5-80
26.
2013.
What is the consolidated total of non-controlling interest appearing in the balance
sheet?
A.
B.
C.
D.
E.
$100,800.
$97,440.
$93,800.
$120,400.
$117,040.
[$364,000/80% = $455,000 + Net Income ($154,000 - $7,000) $147,000]

$602,000 .20 = $120,400
AACSB: Analytic
5-81
Blooms: Apply
5-82
27.
2013.
What is the consolidated total for equipment (net) at December 31, 2013?
A.
B.
C.
D.
E.
$952,000.
$1,058,400.
$1,069,600.
$1,064,000.
$1,066,800.
BV Parent's Equipment $616,000 + BV Sub's Equipment $420,000 + FV Equipment

Increase at Acquisition $35,000 - First Year Excess Amortization of FV ($35,000/5)
$7,000 = $1,064,000
AACSB: Analytic
5-83
Blooms: Apply
statements.
5-84
28.
2013.
What is the consolidated total for inventory at December 31, 2013?
A.
B.
C.
D.
E.
$336,000.
$280,000.
$364,000.
$347,200.
$349,300.
BV Parent's Inventory $210,000 + BV Sub's Inventory $154,000 - Unrealized Profit

on Inventory Transfer ($28,000 .60) $16,800 = $347,200
AACSB: Analytic
Blooms: Apply
5-85
29.
Strickland Company sells inventory to its parent, Carter Company, at a profit

during 2012. One-third of the inventory is sold by Carter in 2012.
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
purchases balances.
30.

A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
purchases balances.
5-86
31.

intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
32.

intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
5-87
33.

method of accounting for its investment in Strickland, which of the following
choices would be a debit entry to eliminate unrealized intra-entity gross profit with
regard to the 2012 intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
consumption.
34.

method of accounting for its investment in Strickland, which of the following
choices would be a credit entry to eliminate unrealized intra-entity gross profit with
regard to the 2012 intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
consumption.
5-88
35.
Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during
2012. One-third of the inventory is sold by Walsh uses the equity method to
account for its investment in Fisher.
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
purchases balances.
36.
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
purchases balances.
5-89
37.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
38.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
5-90
39.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
consumption.
40.
intra-entity sales?
A.
B.
C.
D.
E.
Retained earnings.
Cost of goods sold.
Inventory.
Sales.
AACSB: Analytic
Blooms: Analyze
consumption.
5-91
41.
When comparing the difference between an upstream and downstream transfer of

A. Income from subsidiary will be lower by the amount of the ending inventory
profit multiplied by the non-controlling interest percentage for downstream
transfers.
B. Income from subsidiary will be higher by the amount of the ending inventory
profit multiplied by the non-controlling interest percentage for downstream
transfers.
C. Income from subsidiary will be reduced for downstream ending inventory profit
but not for upstream profit, before the effect of the non-controlling interest.
D. Income from subsidiary will be reduced for upstream ending inventory profit but
not for downstream profit, before the effect of the non-controlling interest.
E. Income from subsidiary will be the same for upstream and downstream profit.

Blooms: Understand
Difficulty: 3 Hard
42.
When comparing the difference between an upstream and downstream transfer of

A. Income from subsidiary will be lower by the amount of the beginning inventory
profits multiplied by the non-controlling interest percentage for upstream
transfers.
B. Income from subsidiary will be higher by the amount of the beginning inventory
profits multiplied by the non-controlling interest percentage for upstream
transfers.
C. Income from subsidiary will be reduced for downstream ending inventory profits
but not for upstream profits, before the non-controlling interest.
D. Income from subsidiary will be reduced for upstream ending inventory profits
but not for downstream profits, before the non-controlling interest.
E. Income from subsidiary will be the same for upstream and downstream profits.

Blooms: Understand
Difficulty: 3 Hard
5-92
43.
Which of the following statements is true regarding inventory transfers between a

parent and its subsidiary, using the initial value method?
A. The sale of merchandise between a parent and its subsidiary represents an
arm's-length transaction and thus provides the basis for the recognition of profit
on such transfers.
B. Profits on upstream transfers associated with the parent's ending inventory are
parent's income from subsidiary. These year-end deferrals are then added to
next year's subsidiary net income in the calculation of parent's income from
subsidiary. This procedure is inappropriate because all the intra-entity
transactions unsold at year-end may not be sold in the next year.
C. Profits on upstream transfers associated with the parent's ending inventory are
parent's income from subsidiary. These year-end deferrals are then added to
next year's subsidiary net income in the calculation of parent's income from
subsidiary. This procedure is appropriate even if all the intra-entity transactions
unsold at year-end may not be sold in the next year.
D. Merchandise transfers from a parent to its subsidiary that have not been sold to
unaffiliated parties should be included in consolidated inventory at their
transfer price.
E. Non-controlling interest in subsidiary's net income should not be reduced for
upstream or downstream ending inventory profits.

Blooms: Understand
statements.
44.
Which of the following statements is true regarding an intra-entity sale of land?

A. A loss is always recognized but a gain is eliminated in a consolidated income
statement.
B. A loss and a gain are always eliminated in a consolidated income statement.
C. A loss and a gain are always recognized in a consolidated income statement.
D. A gain is always recognized but a loss is eliminated in a consolidated income
statement.
E. A gain or loss is eliminated by adjusting stockholders' equity through
comprehensive income.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-06 Prepare the consolidation entry to remove any unrealized gain created by the intra5-93
entity transfer of land from the accounting records of the year of transfer and subsequent years.
45.
Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land
externally for a gain in 2013. Which of the following statements is true?
A. A gain will be reported in the consolidated income statement in 2010.
B. A gain will be reported in the consolidated income statement in 2013.
C. No gain will be reported in the 2013 consolidated income statement.
D.
Only the parent company will report a gain in 2013.
E.
The subsidiary will report a gain in 2010.

Blooms: Understand
Difficulty: 1 Easy
46.
An intra-entity sale took place whereby the transfer price exceeded the book value
of a depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to gain for a downstream transfer.
B. A worksheet entry is made with a debit to gain for an upstream transfer.
C. A worksheet entry is made with a debit to investment in subsidiary for a
D. A worksheet entry is made with a debit to retained earnings for a downstream
transfer, regardless of the method used account for the investment.
E.
AACSB: Analytic
Blooms: Analyze
5-94
47.
An intra-entity sale took place whereby the book value exceeded the transfer price
of a depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to retained earnings for an upstream
transfer.
B. A worksheet entry is made with a credit to retained earnings for an upstream
transfer.
C. A worksheet entry is made with a debit to retained earnings for a downstream
transfer.
D. A worksheet entry is made with a debit to investment in subsidiary for a
E.
AACSB: Analytic
Blooms: Analyze
48.
An intra-entity sale took place whereby the transfer price was less than the book
value of a depreciable asset. Which statement is true for the year following the
sale?
A. A worksheet entry is made with a debit to investment in subsidiary for an
upstream transfer.
B. A worksheet entry is made with a debit to investment in subsidiary for a
C. A worksheet entry is made with a credit to investment in subsidiary for a
D. A worksheet entry is made with a debit to retained earnings for an upstream
transfer, regardless of the method used to account for the investment.
E.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
5-95
49.
Which of the following statements is true concerning an intra-entity transfer of a

depreciable asset?
A. Non-controlling interest in subsidiary's net income is never affected by a gain
on the transfer.
B. Non-controlling interest in subsidiary's net income is always affected by a gain
on the transfer.
C. Non-controlling interest in subsidiary's net income is affected by a downstream
gain only.
D. Non-controlling interest in subsidiary's net income is affected only when the
transfer is upstream.
E. Non-controlling interest in subsidiary's net income is increased by an upstream
gain in the year of transfer.

Blooms: Remember
Difficulty: 1 Easy
5-96
50.
Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory

to Posito at a 25% profit on selling price. The following data are available
pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.
A.
B.
C.
D.
E.
$63,000.
$62,730.
$63,270.
$70,000.
$62,700.
Parent's Part of Net Income 2012 ($70,000 .90) $63,000 - Earnings Adjustment
for Unrealized Gains of Sub 2012 ($1,200 .25 .90) $270 = $62,730
AACSB: Analytic
Blooms: Apply
5-97
51.

A.
B.
C.
D.
E.
$76,500.
$77,130.
$75,870.
$75,600.
$75,800.
for Unrealized Gains of Sub 2013 ($4,000 .25 .90) $900 + (Realized Gains of
Sub for 2012) $270 = $75,870
AACSB: Analytic
Blooms: Apply
consumption.
5-98
52.

A.
B.
C.
D.
E.
$84,600.
$84,375.
$83,925.
$84,825.
$84,850.
for Unrealized Gains of Sub 2014 ($3,000 .25 .90) $675 + (Realized Gains of
Sub for 2013) $900 = $84,825
AACSB: Analytic
Blooms: Apply
consumption.
5-99
53.


A.
B.
C.
D.
E.
$6,970.
$7,000.
$7,030.
$6,270.
$6,230.
Parent's Part of Net Income 2012 ($70,000 .10) $7,000 - Earnings Adjustment for
Unrealized Gains of Sub 2012 ($1,200 .25 .10) $30 = $6,970
AACSB: Analytic
Blooms: Apply
5-100
54.


A.
B.
C.
D.
E.
$8,500.
$8,570.
$8,430.
$8,400.
$7,580.
Unrealized Gains of Sub 2013 ($4,000 .25 .10) $100 + (Realized Gains of Sub
for 2012) $30 = $8,430
AACSB: Analytic
Blooms: Apply
consumption.
5-101
55.


A.
B.
C.
D.
E.
$9,400.
$9,375.
$9,425.
$9,325.
$8,485.
Unrealized Gains of Sub 2014 ($3,000 .25 .10) $75 + (Realized Gains of Sub
for 2013) $100 = $9,425
AACSB: Analytic
Blooms: Apply
consumption.
5-102
56.

For consolidation purposes, what amount would be debited to cost of goods sold
for the 2012 consolidation worksheet with regard to unrealized gross profit of the
intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$300.
$240.
$2,000.
$1,600.
$270.
Earnings Adjustment for Unrealized Gains of Sub 2012 ($1,200 .25) = $300
AACSB: Analytic
Blooms: Analyze
5-103
57.

for the 2013 consolidation worksheet with regard to the unrealized gross profit of
the 2013 intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$1,000.
$800.
$3,000.
$2,400.
$900.
Earnings Adjustment for Unrealized Gains of Sub 2013 ($4,000 .25) = $1,000
AACSB: Analytic
Blooms: Analyze
5-104
58.

for the 2014 consolidation worksheet with regard to the unrealized gross profit of
the 2014 intra-entity transfer of merchandise?
A.
B.
C.
D.
E.
$600.
$750.
$3,760.
$3,000.
$675.
Earnings Adjustment for Unrealized Gains of Sub 2014 ($3,000 .25) = $750
AACSB: Analytic
Blooms: Analyze
5-105
59.


A.
B.
C.
D.
E.
$0.
$1,600.
$300.
$240.
$270.
Zero - No Earnings Adjustment would be necessary in January 2012

AACSB: Analytic
Blooms: Analyze
consumption.
5-106
60.


A.
B.
C.
D.
E.
$240.
$300.
$2,000.
$1,600.
$270.
Realized Gains of Sub 2012 ($1,200 .25) = $300

AACSB: Analytic
Blooms: Analyze
consumption.
5-107
61.


A.
B.
C.
D.
E.
$3,000.
$2,400.
$1,000.
$800.
$900.
Realized Gains of Sub 2013 ($4,000 .25) = $1,000

AACSB: Analytic
Blooms: Analyze
consumption.
5-108
62.
Patti Company owns 80% of the common stock of Shannon, Inc. In the current
year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For
the same period, Shannon has sales of $200,000 and cost of goods sold of
$160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a
price based on the normal markup. At the end of the year, Shannon still possesses
30 percent of this inventory.
Compute consolidated sales.
A.
B.
C.
D.
E.
$10,000,000.
$10,126,000.
$10,140,000.
$10,200,000.
$10,260,000.

AACSB: Analytic
Blooms: Apply
purchases balances.
63.
Compute consolidated cost of goods sold.
A.
B.
C.
D.
E.
$7,500,000.
$7,600,000.
$7,615,000.
$7,604,500.
$7,660,000.
Consolidated COGS = Parents COGS $7,500,000 + Sub's COGS $160,000 - Total

Intra-Entity Transfer $60,000 + Deferred Unrealized Profit ($15,000 .30) $4,500
= $7,604,500
AACSB: Analytic
Blooms: Apply
5-109
purchases balances.
64.
Assume the same information, except Shannon sold inventory to Patti. Compute
consolidated sales.
A.
B.
C.
D.
E.
$10,000,000.
$10,126,000.
$10,140,000.
$10,200,000.
$10,260,000.

AACSB: Analytic
Blooms: Apply
purchases balances.
5-110
65.
Wilson owned equipment with an estimated life of 10 years when it was acquired
for an original cost of $80,000. The equipment had a book value of $50,000 at
January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the
equipment was longer than originally anticipated, at ten remaining years.
Compute the gain on transfer of equipment reported by Wilson for 2012.

A.
B.
C.
D.
E.
$19,500.
$18,250.
$11,750.
$38,250.
$37,500.
January 1, 2012 BV $50,000/10yrs Expected Useful Life = $5,000 per yr

Depreciation Expense. Sale on April 1, 2012 required Three Months Depreciation
Expense leaving a BV on Sale of $48,750. Sale Price of $68,250 - BV on Sale of
$48,750 = $19,500 Gain on Sale
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-111
66.
A.
B.
C.
D.
E.
$1,950.
$1,825.
$1,500.
$2,000.
$5,250.
Amortization of Gain on Transfer of Equipment = $19,500 Gain/9yrs 9 mos.

Remaining Useful Life = $2,000 per yr. 9 mos. of 2012 = $1,500 Depreciation
Adjustment for 2012
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-112
67.
A.
B.
C.
D.
E.
$1,950.
$1,825.
$2,000.
$1,500.
$7,000.

Adjustment for 2013
AACSB: Analytic
Blooms: Apply
5-113
68.
A.
B.
C.
D.
E.
$1,925.
$1,825.
$2,000.
$1,500.
$7,000.

Adjustment for 2014
AACSB: Analytic
Blooms: Apply
5-114
69.
A.
B.
C.
D.
E.
$72,000.
$90,000.
$73,575.
$73,800.
$72,500.
Parent's Part of Net Income 2012 ($100,000 .90) = $90,000

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-115
70.
A.
B.
C.
D.
E.
$108,000.
$110,000.
$106,000.
$109,825.
$109,800.

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-116
71.
A.
B.
C.
D.
E.
$118,825.
$115,000.
$117,000.
$119,000.
$118,800.

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-117
72.
On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc.

transferred equipment with a 10-year life (six of which remain with no salvage
value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's
records carried the equipment at a cost of $120,000 less accumulated depreciation
of $48,000. Straight-line depreciation is used. Smeder reported net income of
$28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the
intra-entity transfer are attributed to the seller for consolidation purposes.
Compute the gain recognized by Smeder Company relating to the equipment for
2012.
A.
B.
C.
D.
E.
$36,000.
$34,000.
$12,000.
$10,000.
$0.
January 1, 2012 Sale Price on Transfer $84,000 - BV $72,000 = $12,000 Gain on

Sale
AACSB: Analytic
Blooms: Apply
73.

A.
B.
C.
D.
E.
$12,400.
$14,400.
$11,200.
$12,800.
$18,000.
2012 Net Income $28,000 - Unrealized Gain on Transfer $12,000 + Amortization of

Gain for First yr. $2,000 = $18,000 .80 = $14,400 Net Income Share to Parent
AACSB: Analytic
5-118

Blooms: Apply
74.

A.
B.
C.
D.
E.
$27,600.
$23,600.
$27,200.
$24,000.
$34,000.
2013 Net Income $32,000 + Amortization of Gain for Second yr. $2,000 = $34,000
.80 = $27,200 Net Income Share to Parent
AACSB: Analytic
Blooms: Apply
5-119
75.

For consolidation purposes, what net debit or credit will be made for the year 2012
relating to the accumulated depreciation for the equipment transfer?
A.
B.
C.
D.
E.

Acc. Deprec. $48,000 - Amortization of Gain for First yr. $2,000 = $46,000 Credit to
Acc. Deprec. for 2012
AACSB: Analytic
Blooms: Apply
76.

What is the net effect on consolidated net income in 2012 due to the equipment
transfer?
A.
B.
C.
D.
E.
Increase $2,000.
Decrease $12,000.
Decrease $10,000.
Decrease $14,000.
Increase $10,000.
Unrealized Gain on Transfer $12,000 - Amortization of Gain for First yr. $2,000 =
$10,000 Decrease in Net Income for 2012
AACSB: Analytic
5-120

Blooms: Analyze
77.
Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from
Leo on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller
reported net income of $125,000 and $140,000 for 2012 and 2013, respectively.
Leo uses the equity method to account for its investment.
A.
B.
C.
D.
E.
$15,000 loss.
$15,000 gain.
$50,000 loss.
$50,000 gain.
$65,000 gain.
Sub's Land Transfer Value $75,000 - Sub's Land BV $60,000 = $15,000 Gain on
Intra-Entity Sale of Land
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
78.
On a consolidation worksheet, what adjustment would be made for 2012 regarding
the land transfer?
A.
B.
C.
D.
E.

Debit land for $15,000.
Credit the Land account for the Gain of $15,000, with any realized gain on the
transfer deferred until the parcel is sold outside the entity in the future
AACSB: Analytic
5-121

Blooms: Apply
Difficulty: 1 Easy
79.
On a consolidation worksheet, having used the equity method, what adjustment
would be made for 2013 regarding the land transfer?
A.
B.
C.
D.
E.

Debit investment in Stiller for $15,000.
Debit the Investment account for the Gain of $15,000, with any realized gain on
the transfer deferred until the parcel is sold outside the entity in the future
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
80.
A.
B.
C.
D.
E.
$110,000.
$100,000.
$125,000.
$85,000.
$88,000.

AACSB: Analytic
Blooms: Apply
5-122
81.
A.
B.
C.
D.
E.
$140,000.
$97,000.
$125,000.
$100,000.
$112,000.

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
82.
Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May
1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net
income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014,
respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in
2014.
A.
B.
C.
D.
E.
$80,000 gain.
$80,000 loss.
$5,000 gain.
$5,000 loss.
$85,000 loss.
Sub's Land Transfer Value $80,000 - Parent's Land BV $85,000 = $5,000 Loss on
Intra-Entity Sale of Land
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
83.
2014.
A.
B.
C.
D.
E.
Debit loss for $5,000.

Credit loss for $5,000.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
84.
2014.
A.
B.
C.
D.
E.

Debit investment in subsidiary for $5,000.
Credit investment in subsidiary for $5,000.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
5-124
85.
2014.
A.
B.
C.
D.
E.
$205,000.
$200,000.
$180,000.
$175,500.
$184,500.
Parent's Part of Net Income 2012 ($200,000 .90) = $180,000 + (Adjusted Loss
on Land $5,000 .90) $4,500 = $184,500
AACSB: Analytic
Blooms: Apply
86.
2014.
A.
B.
C.
D.
E.
$185,000.
$157,500.
$166,500.
$162,000.
$180,000.

AACSB: Analytic
Blooms: Apply
5-125
87.
2014.
Compute Parker's reported gain or loss relating to the land for 2014.
A.
B.
C.
D.
E.
$12,000 gain.
$5,000 loss.
$12,000 loss.
$7,000 gain.
$7,000 loss.
Sub's Sale Price $92,000 - BV of Land $80,000 = $12,000

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
88.
2014.
Compute Stark's reported gain or loss relating to the land for 2014.
A.
B.
C.
D.
E.
$5,000 loss.
$5,000 gain.
$7,000 loss.
$7,000 gain.
$0.
Stark has no Gain or Loss at the time of Sale by Parker

AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-126
89.
2014.
Compute the gain or loss relating to the land that will be reported in consolidated
net income for 2014.
A.
B.
C.
D.
E.
$5,000 loss.
$7,000 gain.
$12,000 gain.
$7,000 loss.
$12,000 loss.
The Reported Gain of $12,000 is offset by the Deferred Loss on the Original
Transfer of $5,000 to have the net effect of a $7,000 Gain in Reported
Consolidated Income
AACSB: Analytic
Blooms: Apply
90.
2014.
A.
B.
C.
D.
E.
$204,300.
$202,500.
$193,500.
$191,700.
$198,000.
Parent's Part of Net Income 2014 $220,000 - Loss Adjustment of ($5,000) on

Disposal of Land = $215,000 .90 = $193,500
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
91.
Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that

date Devin sold equipment to Pepe for $45,000. The equipment had a cost of
$120,000 and accumulated depreciation of $66,000 with a remaining life of 9
years. Devin reported net income of $300,000 and $325,000 for 2012 and 2013,
respectively. Pepe uses the equity method to account for its investment in Devin.
What is the gain or loss on equipment reported by Devin for 2012?
A.
B.
C.
D.
E.
$54,000 gain.
$21,000 loss.
$21,000 gain.
$9,000 loss.
$9,000 gain.
Sub's Equipment Transfer Value $45,000 - Parent's Equipment BV $54,000 =

$9,000 Loss on Intra-Entity Sale of Equipment
AACSB: Analytic
Blooms: Apply
92.

What is the consolidated gain or loss on equipment for 2012?
A.
B.
C.
D.
E.
$0.
$9,000 gain.
$9,000 loss.
$21,000 gain.
$21,000 loss.
There is No Consolidated Gain/Loss Recognized on the Transfer in 2012

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-128
93.

A.
B.
C.
D.
E.
$174,600.
$184,800.
$172,000.
$171,000.
$180,000.
(Sub's 2012 Income $300,000 + Unrealized Loss on Transferred Equipment $9,000

- First Annual Recognition of Loss $1,000) $308,000 .60 = $184,800 Sub's
Income Reported by Parent
AACSB: Analytic
Blooms: Apply
94.

A.
B.
C.
D.
E.
$190,200.
$196,000.
$194,400.
$187,000.
$195,000.
(Sub's 2013 Income $325,000 - Second Year Recognition of Loss $1,000) $324,000
.60 = $194,400 Sub's Income Reported by Parent
AACSB: Analytic
Blooms: Apply
5-129
95.

A.
B.
C.
D.
E.
$116,400.
$120,400.
$120,000.
$123,200.
$112,000.
(Sub's 2012 Income $300,000 + Unrealized Loss on Transferred Equipment $9,000

- First Annual Recognition of Loss $1,000) $308,000 .40 = $123,200 Sub's
Income Reported by Non-Controlling Interest
AACSB: Analytic
Blooms: Apply
96.

A.
B.
C.
D.
E.
$126,800.
$130,000.
$122,000.
$130,800.
$129,600.
(Sub's 2013 Income $325,000 - Second Year Recognition of Loss $1,000) $324,000
.40 = $129,600 Sub's Income Reported by Parent
AACSB: Analytic
5-130
Blooms: Apply
Essay Questions
97.
For each of the following situations (1 - 10), select the correct entry (A - E) that
would be required on a consolidation worksheet.
(A.) Debit retained earnings.
(B.) Credit retained earnings.
(C.) Debit investment in subsidiary.
(D.) Credit investment in subsidiary.
(E.) None of the above.
___ 1. Upstream beginning inventory profit, using the initial value method.
___ 2. Downstream beginning inventory profit, using the initial value method.
___ 3. Upstream ending inventory profit, using the initial value method.
___ 4. Downstream ending inventory profit, using the initial value method.
___ 5. Upstream transfer of depreciable assets, in the period after transfer, where
subsidiary recognizes a gain, using the initial value method.
___ 6. Downstream transfer of depreciable assets, in the period after transfer,
where parent recognizes a gain, using the initial value method.
___ 7. Upstream transfer of land, in the period after transfer, where subsidiary
___ 8. Downstream transfer of land, in the period after transfer, where parent
___ 9. Eliminate income from subsidiary, recorded under the equity method.
___ 10. Eliminate recorded amortization of acquisition fair value over book value,
recorded under the equity method.
(1) A; (2) A; (3) E: (4) E; (5) A: (6) A; (7) B; (8) B; (9) D; (10) C
Blooms: Understand
Difficulty: 3 Hard
consumption.
5-131
98.
On April 7, 2013, Pate Corp. sold land to Shannahan Co., its subsidiary. From a
consolidated point of view, when will the gain on this transfer actually be earned?
The gain is earned when Shannahan sells the land to a third party.
Blooms: Remember
Difficulty: 1 Easy
statements.
99.
Throughout 2013, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From
a consolidated point of view, when will the gain on this transfer be earned?
The gain is earned when Leeward uses the goods or sells them to a third party.
Blooms: Understand
Difficulty: 1 Easy
statements.
100. Varton Corp. acquired all of the voting common stock of Caleb Co. on January 1,
2013. Varton owned some land with a book value of $84,000 that was sold to
Caleb for its fair value of $120,000. How should this transaction be accounted for
by the consolidated entity?
Caleb and Varton are in substance one entity; although in legal form they are
separate. The "sale" of land by Varton should be regarded as a transfer of assets
within the entity. No gain on the transfer should be recognized in the consolidated
financial statements since the earnings process is not complete. Because Caleb
recognized a gain in its income statement, the consolidation process must
eliminate the gain. Also, Caleb's separate balance sheet showed the land at an
amount greater than its cost to the combined entity. The consolidation entry must
reduce land to its cost.
Blooms: Understand
5-132
Difficulty: 1 Easy
statements.
101. During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp.
Forsyth still owned the entire inventory purchased at the end of 2013. Why must
the gross profit on the sale be deferred when consolidated financial statements are
prepared at the end of 2013?
A sale of inventory by a subsidiary to its parent is more accurately understood as a

transfer within the entity. Since Forsyth still owned the inventory at the end of the
year, the earnings process was not yet complete. If recognition of the gross profit
on the transfer was allowed, the parent would be able to manipulate consolidated
net income and consolidated net assets by transferring inventory between parent
and subsidiary.
Blooms: Understand
statements.
102. How does a gain on an intra-entity sale of equipment affect the calculation of a
non-controlling interest?
If the equipment is sold by the parent to the subsidiary, the sale of the equipment
does not affect the calculation of the non-controlling interest's share of the
subsidiary's net income. When the sale of equipment is upstream, the gain on the
sale must be subtracted from the subsidiary's income, and this elimination may be
allocated between the controlling interest and non-controlling interest share of the
subsidiary's earnings.
Blooms: Remember
5-133
103. How do upstream and downstream inventory transfers differ in their effect in a
year-end consolidation?
If the sale of inventory is downstream (from parent to subsidiary), any unrealized

gain on the sale does not affect the calculation of non-controlling interest. When
the sale is upstream (from the subsidiary to the parent), the gain on the sale is
associated with the subsidiary. The gain on goods that the parent still owns should
be deducted from the subsidiary's income and this elimination may be allocated
between the controlling interest and the non-controlling interest's share of the
subsidiary's earnings.
Blooms: Understand
104. How is the gain on an intra-entity transfer of a depreciable asset realized?
The gain on an intra-entity transfer of a depreciable asset may be realized in one

of two ways: (1) through the use of the asset in operations or (2) through the sale
of the asset to an independent third party.
Blooms: Understand
Difficulty: 1 Easy
5-134
105. Dithers Inc. acquired all of the common stock of Bumstead Corp. on January 1,
2013. During 2013, Bumstead sold land to Dithers at a gain. No consolidation
entry for the sale of the land was made at the end of 2013. What errors will this
omission cause in the consolidated financial statements?
Consolidation Entry for 2013

Gain on Sale of Land XXX
Land XXX
This omission causes both the amounts for Land and Gain on Sale of Land to be
overstated in the consolidated financial statements, and ultimately, Total Assets
and Ending Retained Earnings to be overstated as well. Also, the correction for
gain may be allocated to the non-controlling interest share of subsidiary earnings
and the non-controlling interest balance on the consolidated balance sheet.
AACSB: Analytic
Blooms: Analyze
106. Why do intra-entity transfers between the component companies of a business

combination occur so frequently?
One reason for the significant volume and frequency of intra-entity transfers is
that many business combinations are specifically organized so that the companies
can provide products for each other. This design is intended to benefit the business
combination as a whole because of the economies provided by vertical integration.
In effect, more profit can often be generated by the combination if one member is
able to buy from another rather than from an outside party.
Blooms: Understand
statements.
5-135
107. Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards'
inventory in 2013. The transfer price was equal to 30 percent of the sales price.
When preparing consolidated financial statements, what amount of these sales is
eliminated?
Regardless of the ownership percentage or the markup, the $200,000 was simply
an intra-entity asset transfer for consolidation purposes. Thus, within the
consolidation process, the entire $200,000 should be eliminated from both the
Sales and the Purchases (Inventory) accounts.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
purchases balances.
108. What is meant by unrealized inventory gains, and how are they treated on a
consolidation worksheet?
In intra-entity transactions, a transfer price is often established that exceeds the

cost of the inventory. Hence, the seller is recording a gain on its books that, from
the perspective of the business combination as a whole, remains unrealized until
the asset is consumed or sold to an outside party. Any unrealized gain on
merchandise still being held by the buyer must be eliminated whenever
consolidated financial statements are produced. For the year of transfer, this
consolidation procedure is carried out by removing the unrealized gain from the
inventory account on the balance sheet and from the ending inventory balance
within cost of goods sold. In the year following the transfer (if the goods are resold
or consumed), the unrealized gain must again be eliminated within the
consolidation process. This second reduction is made on the worksheet to the
beginning inventory component of cost of goods sold as well as to the beginning
retained earnings balance of the original seller. The gain is being moved into the
year of realization. If the transfer was downstream in direction and the parent
company has applied the equity method, the adjustment in the subsequent year
must be made to the investment in subsidiary account rather than to retained
earnings.
Blooms: Understand
consumption.
5-136
109. What is the impact on the non-controlling interest of a subsidiary when there are
downstream transfers of inventory between the parent and subsidiary companies?
None.
Blooms: Remember
Difficulty: 1 Easy
110. When is the gain on an intra-entity transfer of land realized?
The gain on an intra-entity transfer of land is realized when the asset is sold to an
independent third party. The gain on the intra-entity transfer is deferred until the
time of that third-party sale.
Blooms: Remember
Difficulty: 1 Easy
111. What is the purpose of the adjustments to depreciation expense within the
consolidation process when there has been an intra-entity transfer of a depreciable
asset?
Depreciable assets are often transferred between the members of a business

combination at amounts in excess of book value. The buyer will then compute
depreciation expense based on this inflated transfer price rather than on an
historical cost basis. From the perspective of the business combination,
depreciation should be calculated solely on historical cost figures. Thus, within the
consolidation process for each period, adjustment of the depreciation (recorded by
the buyer) is necessary to reduce the expense to a cost based figure.
Blooms: Understand
5-137
Short Answer Questions

112. Tara Company owns 80 percent of the common stock of Stodd Inc. In the current
year, Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000. For
the same period, Stodd has sales of $500,000 and cost of goods sold of $400,000.
During the year, Stodd sold merchandise to Tara for $40,000 at a price based on
the normal markup. At the end of the year, Tara still possesses 20 percent of this
inventory. Prepare the consolidation entry to defer the unrealized gain.
AACSB: Analytic
Blooms: Apply
5-138
113. King Corp. owns 85% of James Co. King uses the equity method to account for this
investment. During 2015, King sells inventory to James for $500,000. The
inventory originally cost King $420,000. At 12/31/15, 25% of the goods were still in
James' inventory.
Required:
Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation
worksheet.
AACSB: Analytic
Blooms: Apply
purchases balances.
5-139
114. Flintstone Inc. acquired all of Rubble Co. on January 1, 2013. Flintstone decided to
use the initial value method to account for this investment. During 2013,
Flintstone sold to Rubble for $600,000 inventory with a cost of $500,000. At the
end of the year 30% of the goods were still in Rubble's inventory.
Required:
Prepare Consolidation Entry TI for the intra-entity transfer and Consolidation Entry
G for the ending inventory adjustment necessary for the consolidation worksheet
at 12/31/15.
AACSB: Analytic
Blooms: Apply
purchases balances.
5-140
115. Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near
the end of 2013. The goods had cost Yoderly $105,000 and the selling price was
$140,000. Nelson had not sold any of the goods by the end of the year.
Required:
Prepare Consolidation Entry TI and Consolidation Entry G that are required for
2013.
AACSB: Analytic
Blooms: Apply
purchases balances.
116. Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the
initial value method to account for this investment. During 2013, Strayten sold
Quint goods which had cost $48,000. The selling price was $64,000. Quint still had
one-eighth of the goods purchased from Strayten on hand at the end of 2013.
Required:
Prepare Consolidation Entry *G, which would have to be recorded at the end of
2013.
AACSB: Analytic
5-141

Blooms: Apply
117. Hambly Corp. owned 80% of the voting common stock of Stroban Co. During 2013,
Stroban sold a parcel of land to Hambly. The land had a book value of $82,000 and
was sold to Hambly for $145,000. Stroban's reported net income for 2013 was
$119,000.
Required:
What was the non-controlling interest's share of Stroban Co.'s net income?
AACSB: Analytic
Blooms: Apply
5-142
118. McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler
Co. During 2013, Ritter sold inventory to Lawler. The goods had cost Ritter
$65,000, and they were sold to Lawler for $100,000. At the end of 2013, Lawler
still held 30% of the inventory.
Required:
How should the sale between Lawler and Ritter be accounted for in a consolidation
worksheet? Show worksheet entries to support your answer.
Lawler and Ritter are related parties since they are both part of a combined entity.
The following consolidation entries should be prepared:
These entries (1) eliminate the sale from the consolidated income statement, (2)
decrease cost of goods sold, and (3) reduce consolidated inventory to its cost to
the combined entity.
AACSB: Analytic
Blooms: Apply
purchases balances.
5-143
119. Virginia Corp. owned all of the voting common stock of Stateside Co. Both
companies use the perpetual inventory method, and Virginia decided to use the
partial equity method to account for this investment. During 2012, Virginia made
cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling
price. By the end of 2012, Stateside had sold 75% of the goods to outside parties
for $420,000 cash.
Prepare journal entries for Virginia and Stateside to record the sales/purchases
during 2012.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
purchases balances.
5-144
for $420,000 cash.
Prepare the consolidation entries that should be made at the end of 2012.
AACSB: Analytic
Blooms: Apply
purchases balances.
for $420,000 cash.
Prepare any 2013 consolidation worksheet entries that would be required
regarding the 2012 inventory transfer.
AACSB: Analytic
5-145

Blooms: Apply
consumption.
5-146
5-147
122. Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book
values of Icecap's asset and liability accounts at that time were considered to be
equal to their fair values. Polar's acquisition value corresponded to the underlying
book value of Icecap so that no allocations or goodwill resulted from the
transaction.
The following selected account balances were from the individual financial records
of these two companies as of December 31, 2013:
Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intraentity transfers were $130,000 in 2012 and $165,000 in 2013. Of this inventory,
$39,000 of the 2012 transfers were retained and then sold by Icecap in 2013,
while $55,000 of the 2013 transfers were held until 2014.
Required:
5-148
AACSB: Analytic
Blooms: Apply
purchases balances.
consumption.
5-149
5-150
transaction.
Assume that Icecap sold inventory to Polar at a markup equal to 25% of cost. Intraentity transfers were $70,000 in 2012 and $112,000 in 2013. Of this inventory,
$29,000 of the 2012 transfers were retained and then sold by Polar in 2013,
whereas $49,000 of the 2013 transfers were held until 2014.
Required:
5-151
AACSB: Analytic
Blooms: Apply
purchases balances.
consumption.
5-152
5-153
transaction.
Polar sold a building to Icecap on January 1, 2012 for $112,000, although the book
value of this asset was only $70,000 on that date. The building had a five-year
remaining useful life and was to be depreciated using the straight-line method with
no salvage value.
Required:
would appear for the following accounts: (1) Buildings (net), (2) Operating
expenses, and (3) Non-controlling Interest in Subsidiary's Net Income.
5-154
AACSB: Analytic
Blooms: Apply
125. On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned
subsidiary) for $168,000 in cash. The equipment originally cost $140,000 but had
a book value of only $98,000 when transferred. On that date, the equipment had a
five-year remaining life. Depreciation expense was calculated using the straightline method.
What is consolidated net income for 2013?
AACSB: Analytic
Blooms: Apply
5-155
Assuming that Musial owned only 90% of Matin, what is consolidated net income
for 2013?
AACSB: Analytic
Blooms: Apply
5-156
Prepare a schedule of consolidated net income and the share to controlling and
non-controlling interests for 2013, assuming that Musial owned only 90% of Matin
and the equipment transfer had been upstream
AACSB: Analytic
Blooms: Apply
5-157

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Chapter 05

Consolidated Financial Statements-Intra-Entity Asset

Proportionately over a designated period of years.

Non-controlling interest in net income would have decreased by $6,000.

$1,400,000 and $952,000.

$1,400,000 and $952,000.

$1,400,000 and $952,000.

49. Which of the following statements is true concerning an intra-entity transfer of a

Compute the non-controlling interest in Gargiulo's net income for 2012.

Compute the non-controlling interest in Gargiulo's net income for 2013.

Compute the non-controlling interest in Gargiulo's net income for 2014.

For consolidation purposes, what amount would be debited to January 1 retained

For consolidation purposes, what amount would be debited to January 1 retained

For consolidation purposes, what amount would be debited to January 1 retained

Compute the gain on transfer of equipment reported by Wilson for 2012.

Debit accumulated depreciation, $46,000.

Debit gain for $50,000.

Debit retained earnings for $15,000.

Debit loss for $5,000.

Debit retained earnings for $5,000.

104 How is the gain on an intra-entity transfer of a depreciable asset realized?

106 Why do intra-entity transfers between the component companies of a business

110 When is the gain on an intra-entity transfer of land realized?

Short Answer Questions

Chapter 05 Consolidated Financial Statements-Intra-Entity

Multiple Choice Questions

Proportionately over a designated period of years.

AACSB: Reflective thinking

Non-controlling interest in net income would have decreased by $6,000.

$200,000 Revenue - $140,000 COGS = $60,000 Profit on Intra-Entity Sales 25%

Sub's Net Income $204,000 .20 = $40,800

Intra-entity gross profit ($2,400,000 - $1,800,000) $600,000 Inventory remaining

Intra-entity gross profit ($1,000,000 - $800,000) $200,000 Inventory remaining

Sub's Net Income $300,000 - Deferred Unrealized Profit $16,000 = $284,000

Sales Price $45,000 - BV $32,000 = Gain on Sale $13,000

Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is Ignored

Sales Price $125,000 - BV $140, 000 = Loss on Sale $15,000 is Ignored

AACSB: Reflective thinking

Sub's Net Income $137,000 + Deferred Realized Gains $40,000 - Deferred

Sub's Net Income $912,000 + Deferred Realized Gains ($420,000/1.25 30%

Sales Price $115,000 - BV $80,000 = $35,000 Gain on Sale/8yrs = $4,375 Annual

Intra-entity gross profit ($390,000 - $260,000) $130,000 Inventory remaining at

Intra-entity gross profit ($140,000 .40) $56,000 Inventory remaining at year's

$1,400,000 and $952,000.

Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 =

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$1,400,000 and $952,000.

Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 =

$1,400,000 and $952,000.

Consolidated Sales = Parent's Sales $1,120,000 + Sub's sales $420,000 =

Transfer Cost $392,000/8yrs. = $49,000 to record Depreciation and Lowers

AICPA BB: Critical Thinking

Parent's Revenue $420,000 + Sub's Revenue $280,000 - Intra-Entity Sales

Parent's Operating Expenses $28,000 + Sub's Operating Expenses $14,000 +

Consolidated COGS = Parents COGS $196,000 + Sub's COGS $112,000 - Total

[$364,000/80% = $455,000 + Net Income ($154,000 - $7,000) $147,000]

BV Parent's Equipment $616,000 + BV Sub's Equipment $420,000 + FV Equipment

BV Parent's Inventory $210,000 + BV Sub's Inventory $154,000 - Unrealized Profit

Strickland Company sells inventory to its parent, Carter Company, at a profit

Strickland Company sells inventory to its parent, Carter Company, at a profit

Strickland Company sells inventory to its parent, Carter Company, at a profit

Strickland Company sells inventory to its parent, Carter Company, at a profit

Strickland Company sells inventory to its parent, Carter Company, at a profit