Select the correct answer for each of the following questions.
1. In the preparation of a consolidated income statement:
a. Income assigned to noncontrolling shareholders always is computed as a pro rata portion of the reported net income of the consolidated entity.
b. Income assigned to noncontrolling shareholders always is computed as a pro rata portion of the reported net income of the subsidiary.
c. Income assigned to noncontrolling shareholders in the current period is likely to be less than a pro rata portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an intercompany sale of depreciable assets in the preceding period. Assume the depreciable asset was subsequently sold in the current period.
d. Income assigned to noncontrolling shareholders in the current period is likely to be more than a pro rata portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an intercompany sale of depreciable assets in the preceding period. Assume the depreciable asset was subsequently sold in the current period.
2. When a 90 percent-owned subsidiary records a gain on the sale of land to an affiliate during the current period and the land is not resold before the end of the period:
a. Ninety percent of the gain will be excluded from consolidated net income.
b. Consolidated net income will be increased by the full amount of the gain.
c. A proportionate share of the unrealized gain will be excluded from income assigned to noncontrolling interest.
d. The full amount of the unrealized gain will be excluded from income assigned to noncontrolling interest.
3. Minor Company sold land to Major Company on November 15, 20X4, and recorded a gain of $30,000 on the sale. Major owns 80 percent of Minor's common shares. Which of the following statements is correct?
a. A proportionate share of the $30,000 must be treated as a reduction of income assigned to the noncontrolling interest in the consolidated income statement unless the land is resold to a nonaffiliate in 20X4.
b. The $30,000 will not be treated as an adjustment in computing income assigned to the noncontrolling interest in the consolidated income statement in 20X4 unless the land is resold to a nonaffiliate in 20X4.
c. In computing consolidated net income, it does not matter whether the land is or is not resold to a nonaffiliate before the end of the period; the $30,000 will not affect the computation of consolidated net income in 20X4 because the profits are on the subsidiary's books.
d. Minor's trial balance as of December 31, 20X4, should be adjusted to remove the $30,000 gain because the gain is not yet realized.
4. Lewis Company owns 80 percent of Tomassini Corporation's stock. You are told that Tomassini has sold equipment to Lewis and that the following elimination entries are needed to prepare consolidated statements for 20X9:

Which of the following is incorrect?
a. The parent paid $40,000 in excess of the subsidiary's carrying amount to acquire the asset.
b. From a consolidated viewpoint, depreciation expense as Lewis recorded it is overstated.
c. The asset transfer occurred in 20X9 before the end of the year.
d. Consolidated net income will be reduced by $40,000 when these elimination entries aremade.

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Equipment Gain on Sale of Equipment 20,000 40,000 Accumulated Depreciation 60,000 Accumulated Depreciation 5,000 5,000