Multiple Choice Questions
1. James Corporation owns 80 percent of Carl Corporation€™s common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James€™s inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of unrealized intra-entity profit in ending inventory at December 31 that should be eliminated in the consolidation process is
a. $24,000.
b. $30,000.
c. $20,000.
d $75,000.

2. In computing the noncontrolling interest€™s share of consolidated net income, how should the subsidiary€™s net income be adjusted for intra-entity transfers?
a. The subsidiary€™s reported net income isadjusted for the impact of upstream transfers prior to computing the noncontrolling interest€™s allocation.
b. The subsidiary€™s reported net income is adjusted for the impact of all transfers prior to computing the noncontrolling interest€™s allocation.
c. The subsidiary€™s reported net income is not adjusted for the impact of transfers prior to computing the noncontrolling interest€™s allocation.
d. The subsidiary€™s reported net income is adjusted for the impact of downstream transfers prior to computing the noncontrolling interest€™s allocation.

3. Use the same information as in problem (5) except assume that the transfers were from Bottom Company to Top Company. What are the consolidated sales and cost of goods sold?
a. $1,000,000 and $720,000.
b. $1,000,000 and $755,000.
c. $1,000,000 and $696,000.
d $970,000 and $712,000.
Use the following data for Problems 4€“5:
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (5-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez€™s financial records, were estimated to have a 20-year future life.
As of December 31, the financial statements appeared as follows:

During the year, Jarel bought inventory for $80,000 and sold it to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31.

4. What is the total of consolidated revenues?
a. $500,000.
b. $460,000.
c. $420,000.
d $400,000.

5. What is the consolidated total for equipment (net) at December 31?
a. $740,000.
b. $756,000.
c. $760,000.
d$765,000.

Transcribed Image Text:

Jarel Suarez Revenues Cost of goods sold Expenses 300,000) 140,000 20,000 $(200,000) 80,000 10,000 (110,000) Net income Retained earnings, 1/1 Net income. .. Dividends declared $ (140,000) (300,000) 150,000) (110,000) (140,000) Retained earnings, 12/31 Cash and receivables Inventory Investment in Suarez Equipment (net) $ (440,000) $ 210,000 $(260,000) 150,000 260,000 440,000 90,000 110,000 0- 300,000 500,000 Total assets Liabilities. Common stock Retained earnings, 12/31. S 1,060,000 (420,000) (140,000) (100,000) (260,000) (200,000) (440,000) Total liabilities and equities… . $(1,060,000) 500,000)