ch05 beams10e tb
TRANSCRIPT
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Chapter 5 Test Bank
INTERCOMPANY PROFIT TRANSACTIONS INVENTORIES
Multiple Choie !uestions
"O#
#$ The %aterial sale o& in'entor( ite%s )( a parent o%pan( to an
a&&iliate* o%pan(
a$ enters the onsoli*ate* re'enue o%putation onl( i& the
trans&er +as the result o& ar%,s len-th )ar-ainin-$
)$ a&&ets onsoli*ate* net ino%e un*er a perio*i in'entor(
s(ste% )ut not un*er a perpetual in'entor( s(ste%$
$ *oes not result in onsoli*ate* ino%e until the
%erhan*ise is sol* to outsi*e parties$
*$ *oes not re.uire a +orkin- paper a*/ust%ent i& the
%erhan*ise +as trans&erre* at ost$
"O#
0$ 1one(eater Corporation o+ns a 234 interest in Netar Co%pan(
a.uire* se'eral (ears a-o at a ost e.ual to )ook 'alue an*
&air 'alue$ Netar sells %erhan*ise to 1one(eater &or the
&irst ti%e in 0335$ In o%putin- ino%e &ro% the in'estee &or
0335 un*er the e.uit( %etho* 1one(eater uses +hih e.uation6
a$ 234 o& Netar,s ino%e less #334 o& the unreali7e* pro&it
in 1one(eater8s en*in- in'entor($
)$ 234 o& Netar,s ino%e plus #334 o& the unreali7e* pro&it
in 1one(eater8s en*in- in'entor($
$ 234 o& Netar,s ino%e less 234 o& the unreali7e* pro&it in
1one(eater,s en*in- in'entor($
*$ 234 o& Netar,s ino%e plus 234 o& the unreali7e* pro&it in
1one(eater,s en*in- in'entor($
"O#
9$ In situations +here there are routine in'entor( sales )et+een
parent o%panies an* su)si*iaries +hen preparin- the
onsoli*ation state%ents +hih o& the &ollo+in- line ite%s isin*i&&erent to the sales )ein- either upstrea% or *o+nstrea%6
a$ Consoli*ate* retaine* earnin-s$
)$ Consoli*ate* -ross pro&it$
$ Nonontrollin- interest e:pense$
*$ Consoli*ate* net ino%e$
;033< Pearson E*uation In$ pu)lishin- as Prentie 1all
5=#
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"O0
2$ The onsoli*ation proe*ures &or intero%pan( sales are
si%ilar &or upstrea% an* *o+nstrea% sales
a$ i& the %erhan*ise is trans&erre* at ost$
)$ un*er a perio*i in'entor( s(ste% )ut not un*er a perpetual
in'entor( s(ste%$$ i& the %erhan*ise is i%%e*iatel( sol* to outsi*e parties$
*$ +hen the su)si*iar( is #334 o+ne*$
>se the &ollo+in- in&or%ation to ans+er .uestions 5 throu-h
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"O0
$ I& the sale re&erre* to a)o'e +as a *o+nstrea% sale )( +hat
a%ount %ust In'entor( )e re*ue* to re&let the orret )alane
as o& the en* o& 03326
a$ 9333$
)$ #3333$$ #2333$
*$ 03333$
"O0
$ For 0332 onsoli*ate* net ino%e +ill )e +hat a%ount i& the
intero%pan( sale +as *o+nstrea%6
a$ 2533$
)$ 2?33$
$ 2?233$
*$ 53333$
"O0
?$ I& the intero%pan( sale %entione* a)o'e +as an upstrea% sale+hat +ill )e the reporte* a%ount o& total sales re'enue &or
03356
a$ #305333$
)$ #
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>se the &ollo+in- in&or%ation to ans+er .uestions < an* #3$
@uk Corporation a.uire* a 34 interest in histle Corporation
on Ganuar( # 0335 +hen histle,s )ook 'alues +ere e.ual to
their &air 'alues$ @urin- 0335 @uk sol* %erhan*ise that ost
5333 to histle &or ##3333$ On @ee%)er 9# 0335 three=
&ourths o& the %erhan*ise a.uire* &ro% @uk re%aine* inhistle,s in'entor($ Separate ino%es Hin'est%ent ino%e not
inlu*e* o& @uk an* histle are as &ollo+s
@uk histle
Sales Re'enue #53333 033333
Cost o& Doo*s Sol*
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"O9
#0$ Pon* Co$ a 554=o+ne* su)si*iar( o& Doose In$ %a*e the
&ollo+in- entr( to reor* a sale o& %erhan*ise to Doose
Aounts Reei'a)le 3333
Sales Re'enue 3333
All Pon* sales are at #054 o& ost$ One=thir* o& this
%erhan*ise re%aine* in the Doose,s in'entor( at (ear=en*$ A
+orkin- paper entr( to eli%inate unreali7e* pro&its &ro%
onsoli*ate* in'entor( +oul* inlu*e a re*it to In'entor( in
the a%ount o&
a$ 2333$
)$ 5333$
$ ?333$
*$ #3333$
>se the &ollo+in- in&or%ation to ans+er .uestions #9 #2 an*
#5$
ren Corporation a.uire* ?34 o+nership o& Ari* Inorporate*
at a ti%e +hen ren,s in'est%ent Husin- the e.uit( %etho* an*
Ari*,s )ook 'alues +ere e.ual$ @urin- 0335 ren sol* -oo*s to
Ari* &or 033333 %akin- a -ross pro&it perenta-e o& 034$
1al& o& these -oo*s re%aine* unsol* in Ari*,s in'entor( at the
en* o& the (ear$ Ino%e state%ent in&or%ation &or ren an*
Ari* &or 0335 +ere as &ollo+s
ren Ari*
Sales Re'enue #333333 33333
Cost o& Doo*s Sol* 533333 233333
Operatin- E:penses 533333 ?3333
Separate ino%es 053333 #03333
"O9
#9$ The 0335 onsoli*ate* ino%e state%ent sho+e* ost o& -oo*s
sol* o&
a$ 03333$
)$ ??3333$$
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"O9
#2$ The 0335 onsoli*ate* ino%e state%ent sho+e* ino%e &ro% Ari*
o&
a$ 5333$
)$ 333$
$ ?3333$*$ se the &ollo+in- in&or%ation &or .uestions # an* #?
Dre)e Co%pan( routinel( reei'es -oo*s &ro% its ?34=o+ne* su)si*iar(
S+a%p Corporation$ In 0332 S+a%p sol* %erhan*ise that ost ?3333
to Dre)e &or #33333$ 1al& o& this %erhan*ise re%aine* in Dre)e,s
@ee%)er 9# 0332 in'entor($ @urin- 0335 S+a%p sol* %erhan*ise that
ost #3333 to Dre)e &or 033333$ 0533 o& the 0335 %erhan*ise
in'entor( re%aine* in Dre)e,s @ee%)er 9# 0335 in'entor($ Selete*
ino%e state%ent in&or%ation &or the t+o a&&iliates &or the (ear 0335
+as as &ollo+s
Dre)e S+a%p
Sales Re'enue 533333 233333
Cost o& Doo*s Sol* 233333 903333
Dross pro&it #33333 ?3333
;033< Pearson E*uation In$ pu)lishin- as Prentie 1all
5=
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"O2
#$ Consoli*ate* ost o& -oo*s sol* &or Dre)e an* Su)si*iar( &or
0335 +ere
a$ 5#0333$
)$ 50333$
$ 500533$*$ 50?333$
"O2
#?$ hat a%ount o& unreali7e* pro&it *i* Dre)e Co%pan( ha'e at the
en* o& 03326
a$ #3333$
)$ #0533$
$ 53333$
*$ 0533$
"O5
#
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"O9
E:erise #
Petrel Corporation a.uire* a 34 interest in Salt Corporation on
Ganuar( # 0335 at a ost e.ual to )ook 'alue an* &air 'alue$ Salt
reports net ino%e o& ??3333 &or 0335$ Petrel re-ularl( sells
%erhan*ise to Salt at #034 o& Petrel,s ost$ The intero%pan( salesin&or%ation &or 0332 is as &ollo+s
Intero%pan( sales at sellin- prie 0333
Value o& %erhan*ise re%ainin-
unsol* )( Salt #90333
Re.uire*
#$ @eter%ine the unreali7e* pro&it in Salt,s in'entor( at @ee%)er
9# 0332$
0$ Co%pute Petrel,s ino%e &ro% Salt &or 0335$
"O9K2
E:erise 0
Fri-ate)ir* Co$ )ou-ht 54 o& the outstan*in- 'otin- stok o& Cli&&
Corporation at )ook 'alue se'eral (ears a-o$ Fri-ate)ir* sells
%erhan*ise to Cli&& at #054 a)o'e Fri-ate)ir*,s ost$ Intero%pan(
sales &ro% Fri-ate)ir* to Cli&& &or 0335 +ere 53333$ >nreali7e*
pro&its in Cli&&,s @ee%)er 9# 0332 in'entor( an* @ee%)er 9# 0335
in'entor( +ere 0333 an* 9?333 respeti'el($ Cli&& reporte* net
ino%e o&
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"O2
E:erise 5
I)is Corporation a.uire* #334 o& "ake Co$ o%%on stok on Ganuar( #
0339 &or 553333 +hen the )ook 'alues o& "ake,s assets an*
lia)ilities +ere e.ual to their &air 'alues an* "ake,s stokhol*ers,
e.uit( onsiste* o& 0?3333 o& Capital Stok an* 03333 o&Retaine* Earnin-s$
I)is, separate ino%e He:lu*in- "ake +as
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"O9K2
E:erise
Bittern Corporation a.uire* a 34 interest in Ree* Corporation at
)ook 'alue se'eral (ears a-o$ Ree* purhases its entire in'entor(
&ro% Bittern at #234 o& Bittern,s ost$ @urin- 0335 Bittern sol*
#3333 o& %erhan*ise to Ree*$ Ree*,s )e-innin- an* en*in-in'entories &or 0335 +ere 2
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The &ollo+in- on'ersion to e.uit( she*ule pro'i*es in&or%ation that
%a( )e help&ul in o%pletin- the onsoli*ation +orkin- papers &or the
(ear en*e* @ee%)er 9# 0335$
Retaine*
Earnin-s
In'est%ent
in Plu%e
Ino%e
&ro%Plu%e
Prior (ears
In'entor( pro&it H #333 H #333
Current (ear
In'entor( pro&it=0332 #333 #333
In'entor( pro&it=0335 H #533 H#533
Totals H #333 H #533 H 533
Re.uire*
Finanial state%ents o& E-ret an* Plu%e appear in the &irst t+o
olu%ns o& the partiall( o%plete* +orkin- papers$ Co%plete the
onsoli*ation +orkin- papers &or E-ret Corporation an* Su)si*iar( &or
the (ear en*e* @ee%)er 9# 0335$
;033< Pearson E*uation In$ pu)lishin- as Prentie 1all
5=#0
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E-ret Corporation an* Su)si*iar(
Consoli*ation orkin- Papers
&or the (ear en*e* @ee%)er 9# 0335
E-ret Plu%e
Eli%inations Balane
Sheet@e)it Cre*it
INCOME STATEMENTSales
29333 03333
Ino%e &ro%
Plu%e 033
Cost o& Sales H 00333 H ?333
Other e: enses H #0033 H 9333
Net ino%e #333
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"O2
E:erise ?
Car*inal Corporation a.uire* a
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Re.uire*
Prepare a she*ule to *eter%ine Plo'er Corporation,s net ino%e &or
0339 0332 an* 0335$
"O5
E:erise #3
On Ganuar( # 0332 "ap+in- Corporation purhase* 34 o& the o%%on
stok o& Fora-e Corporation &or 903333 +hen Fora-e ha* Co%%on Stok
outstan*in- o& #33333 an* Retaine* Earnin-s o& 033333$ An( e:ess
*i&&erential +as attri)ute* to -oo*+ill$
At the en* o& 0332 "ap+in- an* Fora-e ha* unreali7e* in'entor(
pro&its &ro% intero%pan( sales o& 333 an* ?333 respeti'el($
These (ear=en* pro&it a%ounts +ere reali7e* in 0335$ At the en* o&
0335 "ap+in- hel* in'entor( a.uire* &ro% Fora-e +ith a #3333
unreali7e* pro&it$ "ap+in- reporte* separate ino%e o& #33333 &or
0335 an* pai* *i'i*en*s o& 93333$ Fora-e reporte* separate ino%eo& 3333 &or 0335 an* pai* *i'i*en*s o& 03333$
Re.uire*
Co%pute the a%ount o& onsoli*ate* net ino%e &or 0335$
;033< Pearson E*uation In$ pu)lishin- as Prentie 1all
5=#5
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#3$ ) Co%)ine* ost o& sales #3333
"ess Intero%pan( sales re'enue H ##3333
Plus >nreali7e* pro&it taken out
o& in'entor( H54:H95333 0053
Consoli*ate* ost o& sales 053
##$ a H##5333 : 34 = 0053 52053
#0$ a Sellin- prie 3333
"ess Cost o& sales H 2?333
>nreali7e* pro&it #0333
>nsol* &ration #L9
Cre*it to In'entor( 2333
#9$ a 533333J233333=
033333J03333
#2$ ) #03333$?=033333$0$5
#5$ * @o+nstrea% situation
#$ a It +ill )e o'erstate* )( the
a%ount o& the %inorit( interests,
share o& the #33 o& pro&it%ar-in in the
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#
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E:erise #
Re.uire%ent #
>nreali7e* pro&it in in'entor(
#90333 H#90333L#$0 00333
Re.uire%ent 0
Ino%e &ro% Salt &or 0335
Share o& Salt,s ino%e H??3333 : 34 50?333
"ess >nreali7e* pro&it in en*in- in'entor( H 00333
Ino%e &ro% Salt 53333
E:erise 0
Re.uire%ent #
Ino%e &ro% Cli&&
Share o& Cli&&,s reporte* net ino%e
nreali7e* pro&it in )e-innin- in'entor( 0333
"ess >nreali7e* pro&it in en*in- in'entor( H 9?333
Ino%e &ro% Cli&& 2333
Re.uire%ent 0
@e)it Cre*it
Sales Re'enue 53333
Cost o& Doo*s Sol* 53333
To eli%inate intero%pan( sales an* purhases
In'est%ent in Cli&& 0333
Cost o& Doo*s Sol* 0333
To reo-ni7e pre'iousl( *e&erre* unreali7e* pro&its &ro% the
)e-innin- in'entor(
Cost o& Doo*s Sol* 9?333
In'entor( 9?333
To eli%inate intero%pan( pro&it in the en*in- in'entor( &ro% ost o&
-oo*s sol* an* in'entor(
;033< Pearson E*uation In$ pu)lishin- as Prentie 1all
5=#
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E:erise 9
Tern Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9# 0335
Sales Ho%)ine* #33333 = 005333 intero%pan( #95333Cost o& Doo*s Sol* Hsee )elo+ H 3333E:penses H 233333Minorit( Interest H 03333
Consoli*ate* net ino%e 0?5333
Consoli*ate* ost o& -oo*s sol* o%putation
Co%)ine* ost o& sales H33333 J 933333 nreali7e* pro&it in )e-innin- in'entor(
H#?3333 = #03333 : #L0 H 93333
A** >nreali7e* pro&it in en*in- in'entor( H005333 = #53333 : #L9 05333
Consoli*ate* Cost o& Doo*s Sol* 3333
E:erise 2
E-ret Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9# 0335
Sales Ho%)ine* 993333 J #?3333 = #2?333 90333Cost o& Doo*s Sol* Hsee )elo+ H #5053E:penses H
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E:erise 5
0339 0332 0335
I)is,s separate ino%e
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E:erise
E-ret Corporation an* Su)si*iar(
Consoli*ation orkin- Papers
&or the (ear en*e* @ee%)er 9# 0335
E-ret Plu%eEli%inations Non=
Cntrl$BalaneSheet@e)it Cre*it
INCOME STATEMENT
Sales
29333 03333 ) 333 5333
Ino%e &ro%
Plu%e 033
a
e
533
33
Cost o& Sales H 00333 H ?333
* #533 )
333
#333 H 02533
Other e:penses H #0033 H 9333 H #5033
Minorit( ino%e #?33 H #?33
Net ino%e #333 ITY
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E:erise ?
Car*inal Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9# 0335
Sales Ho%)ine* ?93333 J 0
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E:erise #3
"ap+in- separate ino%e #33333
A** Reali7e* pro&it in )e-innin-
in'entor( H-i'en 333
"ess >nreali7e* pro&it in en*in- in'entor( H-i'en H #3333
"ap+in- a*/uste* separate ino%e