Chapter9ed06

Chapter9ed06 - Chapter 6 Test Bank INTERCOMPANY PROFIT...

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Chapter 6 Test Bank INTERCOMPANY PROFIT TRANSACTIONS - PLANT ASSETS Multiple Choice Questions Use the following information for questions 1 and 2. In 2004, Parrot Company sells land to its subsidiary Tree Corporation with a book value of $10,000 for $12,000. In the next year, Tree sells the land for $18,000 to an unaffiliated firm. LO1 1. Which of the following is true? a. no consolidation working paper entry is necessary in 2004. b. a consolidation working paper entry is required only if the subsidiary is less than 100% owned in 2004. c. a consolidation working paper entry is required each year until the land is sold outside the related parties. d. a consolidated working paper entry is required only if the land is held for resale in 2004. LO1 2. The 2004 unrealized gain a. Will be deferred until 2006. b. Will be eliminated from consolidated net income by a working paper entry that credits land $2,000. c. Will make consolidated net income $2,000 less than it would have been had the sale not occurred. d. Will make consolidated net income $2,000 greater than it would have been had the sale not occurred. LO1 3. On January 1, 2005, Eagle Corporation sold a equipment with a book value of $40,000 and a 20-year remaining useful life to its wholly-owned subsidiary, Rabbit Corporation, for $60,000. Both Eagle and Rabbit use the straight-line depreciation method. On December 31, 2005, the separate company financial statements held the following balances associated with the equipment: Eagle Rabbit Gain on sale of equipment $ 20,000 Depreciation expense $ 3,000 Equipment 60,000 Accumulated depreciation 3,000 134
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A working paper entry to consolidate the financial statements of Eagle and Rabbit on December 31, 2005 will include a: a. debit to gain on sale of equipment for $19,000. b. credit to gain on sale of equipment for $20,000. c. debit to accumulated depreciation for $1,000. d. credit to depreciation expense for $3,000. Use the following information for questions 4 and 5. On December 31, 2005, Corella Corporation sold equipment with a three-year remaining useful life and a book value of $21,000 to its 70%-owned subsidiary Hollow Company for a price of $27,000. Corella bought the equipment four years ago for $49,000. LO1 4. What is the intercompany sale impact on the consolidated financial statements for the year ended December 31, 2005, Corella’s Net Income Corella’s Income from Hollow a. No effect No effect b. No effect Decreased c. Decreased No effect d. Increased Decreased LO1 5. What is the intercompany sale impact on the consolidated financial statements for the year ended December 31, 2005, Consolidated Net Income Consolidated Net Assets a. No effect No effect b. No effect Increased c. Decreased Decreased d. Decreased No effect LO1 6. On January 2, 2005 Kakapo Company sold a truck with book value of $45,000 to Flightless Corporation its completely owned subsidiary for $60,000. The truck has a remaining useful life of three years with zero salvage value. Both firms use the
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Chapter9ed06 - Chapter 6 Test Bank INTERCOMPANY PROFIT...

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