ACT4491 CH04 Exercises

ACT4491 CH04 Exercises - Issues 1 During 20x1 Company P...

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During 20x1, Company P sold 40,000 of goods to subsidiary Company S at a profit of 10,000. One-fourth of the goods remain unsold at year-end. If there were no adjustments made on the consolidated workpaper, what would be incorrect on the Consolidated income statement and balance sheet? Income Statement Sales Overstated 40,000 Cost of goods sold Overstated 40,000 Cost of goods sold Understated 2,500 (1/4 x 10,000) Balance Sheet Inventory Overstated 2,500 (1/4 x 10,000) Issues 1
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Issues 2 Debit Sales and credit Cost of Goods Sold $40,000. Debit Cost of Goods Sold and credit Inventory $2,500 (1/4 × $10,000).
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Issues 3 20X1 20X2 NCI $ 0 $ 400 ($2,000 × 20%) Controlling Interest 0 5,600 [$4,000 + ($2,000 × 80%)] Total profit $ 0 $ 6,000
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Issues 4 Company S has realized a $50,000 profit; however, it is not immediate. The profit will be realized over the 5-year life of the asset. Company S will realize the profit by reducing consolidated depreciation expense by $10,000 ($50,000 ÷ 5 years) each year for 5 years. NCI will realize $2,000 (20% × $10,000) each year.
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EXERCISE 4-1 Painter Company and Subsidiary Solvent Company
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