1. Per, Inc., owns 80 percent of Sen, Inc. During 2011, Per sold goods with a 40 percent gross profit to Sen. Sen sold all of these goods in 2011. For 2011 consolidated financial statements, how should the summation of Per and Sen income statement items be adjusted?

a. Sales and cost of goods sold should be reduced by the intercompany sales.

b. Sales and cost of goods sold should be reduced by 80 percent of the intercompany sales.

c. Net income should be reduced by 80 percent of the gross profit on intercompany sales.

d. No adjustment is necessary.

2. Car Company had the following transactions with affiliated parties during 2011.

??? Sales of $180,000 to Den, with $60,000 gross profit. Den had $45,000 of this inventory on hand at year-end. Car owns a 15 percent interest in Den and does not exert significant influence.

??? Purchases of raw materials totaling $720,000 from Ken Corporation, a wholly owned subsidiary. Ken's gross profit on the sale was $144,000. Car had $180,000 of this inventory remaining on December 31, 2011. Before eliminating entries, Car had consolidated current assets of $960,000. What amount should Car report in its December 31, 2011, consolidated balance sheet for current assets?

a. $960,000

b. $951,000

c. $924,000

d. $303,000

3. Par Corporation owns 80 percent of Sit's common stock. During 2011, Par sold Sit $750,000 of inventory on the same terms as sales made to third parties. Sit sold 100 percent of the inventory purchased from Par in 2011. The following information pertains to Sit's and Par's sales for 2011:

What amount should Par report as cost of sales in its 2011 consolidated income statement?a. $2,250,000b. $2,040,000c. $1,500,000d.$1,290,000

Transcribed Image Text:

Sit Par Sales $3,000,000 $2,100,000 Cost of Sales $1,800,000 $1.050,000