Sample Quiz for Chapter 5

Sample Quiz for Chapter 5 - Indiana University of...

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Indiana University of Pennsylvania Department of Accounting ACCT 401/501: Advanced Accounting Dr. Rahman Sample Quiz for Chapter 5 Part I Circle the best choice. 1. The material sale of inventory items by a parent company to an affiliated company a. enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining. b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. c. does not result in consolidated income until the merchandise is sold to outside parties. d. does not require a working paper adjustment if the merchandise was transferred at cost. 2. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2018. In computing income from the investee for 2018 under the equity method, Honeyeater uses which equation? a. 40% of Nectar’s income less 100% of the unrealized profit in Honeyeater's ending inventory. b. 40% of Nectar’s income plus 100% of the unrealized profit in Honeyeater's ending inventory. c. 40% of Nectar’s income less 40% of the unrealized profit in Honeyeater’s ending inventory. d. 40% of Nectar’s income plus 40% of the unrealized profit in Honeyeater’s ending inventory. Use the following information to answer questions 3 through 6. Eagle Corporation owns 80% of Flyway Inc.’s common stock that was purchased at its underlying book value. The two companies report the following information for 2016 and 2017. During 2016, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2016, 30% of the inventory was unsold. In 2017, the remaining inventory was resold outside the consolidated entity. 2016 Selected Data: Eagle Flyway Sales Revenue $600,000 $320,000 Cost of Goods Sold 320,000 155,000 Other Expenses 100,000 89,000 Net Income $180,000 $ 76,000 Dividends Paid 19,000 0 2017 Selected Data: Eagle Flyway Sales Revenue $580,000 $445,000 Cost of Goods Sold 300,000 180,000 Other Expenses 130,000 171,000 Net Income $150,000 $ 94,000 Dividends Paid 16,000 5,000
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3. If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated
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This note was uploaded on 09/21/2011 for the course ECON 101 taught by Professor Flah during the Spring '10 term at Punjab Engineering College.

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Sample Quiz for Chapter 5 - Indiana University of...

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