Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net incom
ID: 2464378 • Letter: S
Question
Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net income of $600,000 and paid dividends totaling $225,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Sleepy's identifiable net assets at the date of the business combination was $112,500. The noncontrolling interest in consolidated net income of Sleepy for Year 3 was:
$33,750.
$67,500.
$180,000.
$146,250.
The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a:
credit to Ending Inventory (Cost of Sales).
debit to Ending Inventory (Cost of Sales).
credit to Sales.
debit to Inventory - Balance Sheet.
In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:
be eliminated to the extent of the parent company's controlling interest in the subsidiary.
be eliminated to the extent of the noncontrolling interest in the subsidiary.
be eliminated in full.
not be eliminated.
If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account:
debits Difference Between Implied and Book Value.
credits Difference Between Implied and Book Value.
debits Excess of Fair Value over Implied Value.
debits Difference Between Implied and Fair Value.
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 2016, P sold merchandise that cost $192,000 to S for $240,000. Half of this merchandise remained in S's December 31, 2016 inventory. During 2017, P sold merchandise that cost $300,000 to S for $375,000. Forty percent of this merchandise inventory remained in S's December 31, 2017 inventory. Selected income statement information for the two affiliates for the year 2017 is as follows:
P
S
$1,800,000
$900,000
1,440,000
750,000
$ 360,000
$150,000
Consolidated sales revenue for P and Subsidiary for 2017 are:
$2,700,000.
$2,565,000.
$2,325,000.
$2,400,000.
A.$33,750.
B.$67,500.
C.$180,000.
D.$146,250.
Explanation / Answer
Q-1 )
Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net income of $600,000 and paid dividends totaling $225,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Sleepy's identifiable net assets at the date of the business combination was $112,500. The noncontrolling interest in consolidated net income of Sleepy for Year 3 was:
A.
$33,750.
B.
$67,500.
C.
$180,000.
D.
$146,250.
The noncontroling portion is 30%
The interest in consolidated net income of Sleepy for Year 3 was
= 600000*30% = 180000
Answer – Option –C ( $ 180000)
Q-2)
The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a:
A.
credit to Ending Inventory (Cost of Sales).
B.
debit to Ending Inventory (Cost of Sales).
C.
credit to Sales.
D.
debit to Inventory - Balance Sheet.
Answer - )
Ending Inventory - Inc. state. (COGS) - DR
(To exclude the unrealized profit from consolidated net income)
Inventory - balance sheet
(To exclude the unrealized profit from ending inventory
Answer – Option – B - debit to Ending Inventory (Cost of Sales)
Q-3 )
In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:
A.
be eliminated to the extent of the parent company's controlling interest in the subsidiary.
B.
be eliminated to the extent of the noncontrolling interest in the subsidiary.
C.
be eliminated in full.
D.
not be eliminated.
Answer- Option - A
be eliminated to the extent of the parent company's controlling interest in the subsidiary.
Q-4 )
If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account:
A.
debits Difference Between Implied and Book Value.
B.
credits Difference Between Implied and Book Value.
C.
debits Excess of Fair Value over Implied Value.
D.
debits Difference Between Implied and Fair Value.
Investment always should record at book value or purchase value
If fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account:
Answer – Option – A - debits Difference Between Implied and Book Value.
Q-5
Total Sales Revenue (both P & Q) for the year 2017 = 2700000
Less: Cost of merchandise sold by P to Q 300000
Total Consolidated Revenue for P and Q = 24,00,000
Answer – OPTION - d
A.
$33,750.
B.
$67,500.
C.
$180,000.
D.
$146,250.
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