ABC Quiz 5

Question 1 Equipment
Sales from subsidiary to parent are

called: Retained Earnings – P
Non-controlling interest
Upstream sales
Downstream sales Question 4
Inter-subsidiary sales Blue Company owns 70 percent of Black
Company's outstanding common stock.
Horizontal sales
On December 31, 2008, Black sold
equipment to Blue at a price in excess of
Question 2 Black's carrying amount, but less than
In computing the noncontrolling its original cost. On a consolidated
interest’s share of consolidated net balance sheet at December 31, 2008,
income, how should the subsidiary’s the carrying amount of the equipment
income be adjusted for intra-entity should be reported at:
transfers?
Blue's original cost less Black's
The subsidiary’s reported income is recorded gain
adjusted for the impact of upstream
transfers prior to computing the Blue's original cost less 70 percent
noncontrolling interest’s allocation of Black's recorded gain
The subsidiary’s reported income is Blue's original cost
adjusted for the impact of all transfers Black's original cost
prior to computing the noncontrolling
interest’s allocation Question 5
The subsidiary’s reported income is A parent and its 80 percent owned
not adjusted for the impact of transfers subsidiary have made several
prior to computing the noncontrolling intercompany sales of noncurrent assets
interest’s allocation during the past two years. The amount
of income assigned to the noncontrolling
The subsidiary’s reported income is
interest for the second year should
adjusted for the impact of downstream
include the noncontrolling interest's
transfers prior to computing the
share of gains:
noncontrolling interest’s allocation
realized in the second year from
Question 3 upstream sales made in both years
Company S sells equipment to its parent
company (P) at a gain. In years both realized and unrealized from
subsequent to the year of the upstream sales made in the second year
intercompany sale, a workpaper entry is unrealized in the second year from
made under the cost method debiting upstream sales made in the second year
All of these realized in the second year from

downstream sales made in both years
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Question 6 financial statements for 2019, the
A wholly owned subsidiary sold land to following eliminating entry was made:
its parent during the year at a gain. The Retained Earnings, January 1 50,000
parent continues to hold the land at the
end of the year. The amount to be Land 50,000
reported as consolidated net income for
the year should equal: Which of the following statements is
correct?
the parent's separate operating
income, plus the subsidiary's net Deimos Company purchased land
income, minus the intercompany gain from Phobos Company before January
1, 2019
the parent's separate operating
income, plus the subsidiary's net Deimos Company purchased land
income, plus the intercompany gain from Phobos Company during 2019
the parent's net income, plus the Phobos Company purchased land
subsidiary's net income, minus the from Deimos Company before January
intercompany gain 1, 2019
the parent's separate operating Phobos Company purchased land

income, plus the subsidiary's net income from Deimos Company during 2019
Question 7 Question 9
Any intercompany gain or loss on a Mortar Corporation acquired 80 percent
downstream sale of land should be of Granite Corporation's voting common
recognized in consolidated net income: stock on January 1, 2007. On December
I. in the year of the downstream sale 31, 2008, Mortar received $390,000
from Granite for a equipment Mortar had
II. over the period of time the subsidiary purchased on January 1, 2005, for
uses the land $400,000. The equipment is expected to
have a 10-year useful life and no
III. in the year the subsidiary sells the salvage value. Both companies
land to an unrelated party depreciate equipment on a straight-line
basis.
III
Based on the preceding information, in
II
the preparation of the 2008 consolidated
I financial statements, equipment will be:
I or II
debited for $10,000
Question 8 debited for $1,000
Phobos Company holds 80 percent of credited for $15,000
Deimos Company's voting shares.
During the preparation of consolidated debited for $25,000
SOLUTION: depreciate equipment on a straight-line
400,000-390,000=10,000 basis.
Question 10 the preparation of the 2009 consolidated
Mortar Corporation acquired 80 percent financial statements, equipment will be:
of Granite Corporation's voting common
stock on January 1, 2007. On December debited for $10,000
31, 2008, Mortar received $390,000 debited for $1,000
from Granite for an equipment Mortar
had purchased on January 1, 2005, for credited for $15,000
$400,000. The equipment is expected to debited for $25,000
salvage value. Both companies
depreciate equipment on a straight-line Question 12
basis. Mortar Corporation acquired 80 percent
of Granite Corporation's voting common
Based on the preceding information, the stock on January 1, 2007. On December
gain on sale of the equipment recorded 31, 2008, Mortar received $390,000
by Mortar for 2008 is: from Granite for a equipment Mortar had
purchased on January 1, 2005, for
$150,000 $400,000. The equipment is expected to
$65,000 have a 10-year useful life and no
$110,000
depreciate equipment on a straight-line
$40,000 basis.
SOLUTION: the preparation of the 2009 consolidated
400,000/10=40,000 income statement, depreciation expense
40,000x4 yrs.=160,000 will be:
400,000-160,000=240,000 CA
390,000-240,000=150,000 credited for $25,000 in the
eliminating entries
Question 11 debited for $25,000 in the

Mortar Corporation acquired 80 percent eliminating entries
of Granite Corporation's voting common credited for $15,000 in the
stock on January 1, 2007. On December eliminating entries
31, 2008, Mortar received $390,000
debited for $15,000 in the
from Granite for a equipment Mortar had
eliminating entries
$400,000. The equipment is expected to
SOLUTION: 2008, Blue purchased the building from
Gain 150,000/6 yrs.= 25,000 excess Black for $180,000. Blue reported
depreciation income, excluding investment income
from Black, of $140,000 and $162,000
Question 13 for 2008 and 2009, respectively. Black
Mortar Corporation acquired 80 percent reported net income of $30,000 and
of Granite Corporation's voting common $45,000 for 2008 and 2009, respectively
stock on January 1, 2007. On December Based on the preceding information, the
31, 2008, Mortar received $390,000 amount to be reported as consolidated
from Granite for equipment Mortar had net income for 2008 will be:
$400,000. The equipment is expected to $190,000
salvage value. Both companies $170,000
depreciate equipment on a straight-line $175,000
basis.
$150,000
the preparation of the 2009 consolidated SOLUTION:
balance sheet, accumulated 500,000/10=50,000x6 yrs.=300,000
depreciation will be: 500,000-300,000=200,000
200,000-180,000=20,000 loss of Black
credited for $135,000 in the
eliminating entries 140,000 Blue + 30,000 Black + 20,000
loss = 190,000
eliminating entries
Question 15
eliminating entries Blue Corporation holds 70 percent of
Black Company's voting common stock.
credited for $160,000 in the On January 1,2003, Black paid
eliminating entries $500,000 to acquire a building with a 10-
year expected economic life. Black uses
SOLUTION: straight-line depreciation for all
160,000 AD-25,000 excess=135,000 depreciable assets. On December 31,
2008, Blue purchased the building from
Black for $180,000. Blue reported
Question 14 income, excluding investment income
Blue Corporation holds 70 percent of from Black, of $140,000 and $162,000
Black Company's voting common stock. for 2008 and 2009, respectively. Black
On January 1,2003, Black paid reported net income of $30,000 and
$500,000 to acquire a building with a 10- $45,000 for 2008 and 2009, respectively
Based on the preceding information, the
straight-line depreciation for all
amount of income assigned to the
depreciable assets. On December 31,
controlling shareholders in the Blue 162,000 + Black 45,000 = 207,000
consolidated income statement for 2008 207,000-5,000 exp.=202,000
will be:
Question 17
$175,000 Blue Corporation holds 70 percent of
$150,000 On January 1,2003, Black paid
$170,000 $500,000 to acquire a building with a 10-
$190,000
straight-line depreciation for all
depreciable assets. On December 31,
SOLUTION:
Black 50,000x.70=35,000 Black for $180,000. Blue reported
income, excluding investment income
140,000+35,000=175,000 from Black, of $140,000 and $162,000
for 2008 and 2009, respectively. Black
Question 16 reported net income of $30,000 and
Blue Corporation holds 70 percent of $45,000 for 2008 and 2009, respectively
On January 1,2003, Black paid Based on the preceding information, the
$500,000 to acquire a building with a 10- amount of income assigned to the
year expected economic life. Black uses controlling shareholders in the
straight-line depreciation for all consolidated income statement for 2009
depreciable assets. On December 31, will be:
Black for $180,000. Blue reported $190,000
income, excluding investment income $212,000
from Black, of $140,000 and $162,000
$202,000
for 2008 and 2009, respectively. Black
reported net income of $30,000 and $207,000
$45,000 for 2008 and 2009, respectively
SOLUTION:
Based on the preceding information, the 45,000x.70=31,500
amount to be reported as consolidated 5,000x.70=3,500
net income for 2009 will be: Blue 162,000+31,500-3,500=190,000
$202,000
Question 18
$212,000 Stroud Corporation is an 80%-owned
$190,000 subsidiary of Pennie Inc. acquired by
Pennie several years ago. On January
$207,000 1, 20x4, Pennie sold land with a book
value of P60,000 to Stroud for P90,000.
SOLUTION: Stroud resold the land to an unrelated
20,000 loss/4 yrs.=5,000 dep. expense
party for P100,000 on September 26, 20x5 consolidated income statement
20x5 reported a gain on the sale of land of
The land will be included in the P70,000
December 31, 20x4 consolidated
balance sheet of Pennie and Stroud at P58,000
P42,000
P60,000
P40,000
P72,000
P90,000 SOLUTION:
Seed’s gain = 30,000
P48,000 Pigeon’s gain = 40,000
Question 19
Stroud Corporation is an 80%-owned
subsidiary of Pennie Inc. acquired by
Pennie several years ago. On January
1, 20x4, Pennie sold land with a book
value of P60,000 to Stroud for P90,000.
Stroud resold the land to an unrelated
party for P100,000 on September 26,
20x5
The gain on sale of land that will appear

in the consolidated income statements
for 20x4 and 20x5, respectively is
P0 and P40,000
P0 and P10,000
P30,000 and P10,000
P30,000 and P40,000
SOLUTION:
20x4 – intercompany sale
20x5 – 100,000-60,000=40,000
Question 20
Pigeon Company purchased land from
its 60%-owned subsidiary, Seed, Inc. in
20x4 at a cost of P30,000 greater than
Seed’s book value. In 20x5, Pigeon sold
the land to an outside entity for P40,000
more than Pigeon’s book value. The
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Question 1 Equipment

Sales from subsidiary to parent are

All of these realized in the second year from

the parent's separate operating Phobos Company purchased land

Question 11 debited for $25,000 in the

The gain on sale of land that will appear

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