Select the correct answer for each of the following questions.

1. Upper Company holds 60 percent of the voting shares of Lower Company. During the preparation of consolidated financial statements for \(20 \mathrm{X} 5\), the following eliminating entry was made:

Which of the following statements is correct?

a. Upper Company purchased land from Lower Company during 20X5.

b. Upper Company purchased land from Lower Company before January 1, 20X5.

c. Lower Company purchased land from Upper Company during 20X5.

d. Lower Company purchased land from Upper Company before January 1, 20X5.
2. Middle Company holds 60 percent of the voting shares of Bottom Corporation. Bottom Corporation has developed a new type of production equipment that appears to be quite marketable. Bottom Corporation spent \(\$ 40,000\) in developing the equipment; however, Middle Company agreed to purchase the production rights for the machine for \(\$ 100,000\). If the intercompany sale occurred on January 1,20X2, and the production rights are expected to have value for five years, at what amount should the rights be reported in the consolidated balance sheet for December 31, 20X2?

a. \(\$ 0\).

b. \(\$ 32,000\).

c. \(\$ 80,000\).

d. \(\$ 100,000\).
Questions 3 through 6 are based on the following information:
On January 1, 20X4, Gold Company purchased a computer with an expected economic life of five years. On January 1, 20X6, Gold Company sold the computer to Silver Corporation and recorded the following entry:

Silver Corporation holds 60 percent of the voting shares of Gold Company. Gold Company reported net income of \(\$ 45.000\), and Silver Corporation reported income from its own operations of \(\$ 85,000\) for \(20 \mathrm{X} 6\). There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer.
3. In the preparation of the \(20 \mathrm{X} 6\) consolidated income statement, depreciation expense will be:

a. Debited for \(\$ 5,000\) in the eliminating entries.

b. Credited for \(\$ 5,000\) in the eliminating entries.

c. Debited for \(\$ 13,000\) in the eliminating entries.

d. Credited for \(\$ 13,000\) in the eliminating entries.
4. In the preparation of the \(20 \mathrm{X} 6\) consolidated balance sheet, computer equipment will be:

a. Debited for \(\$ 1,000\).

b. Debited for \(\$ 15,000\).

c. Credited for \(\$ 24,000\).

d. Debited for \(\$ 40,000\).

5. Income assigned to the noncontrolling interest in the 20X6 consolidated income statement will be:

a. \(\$ 12,000\).

b. \(\$ 14,000\).

c. \(\$ 18,000\).

d. \(\$ 52,000\).
6. Consolidated net income for 20X6 will be:

a. \(\$ 103,000\).

b. \(\$ 106,000\).

c. \(\$ 112,000\).

d. \(\$ 130,000\).

Transcribed Image Text:

Retained Earnings, January 1 Land 10.000 10.000