1 Chapter 4 Review Question Which of the following is false about intercompany transactions? a. Intercompany transactions have to be eliminated in the consolidation worksheet. The profit resulting from intercompany sales of merchandise is considered unrealized until the merchandise is sold to outsiders. c. Every year in the consolidation worksheet, we need to eliminate all intercompany sales of merchandise that occurred since the parent acquired the subsidiary (i.e., all intercompany sales in the current and prior years). d. Al of these statements are true. Correct Answer: C Which of the following is true about notes payable issued from a subsidiary to the parent company (i.e., intercompany debt)? a. In the consolidation worksheet, the note payable, note receivable, interest expense, and interest income related to intercompany debt must be eliminated. b. Ifthe note is discounted at an outsider entity (e.g., bank), then the note payable and interest expense should be reported on the consolidated financial statements. C. All of these statements are true. Correct Answer: C None of these statements is true. Use the following information for the next five items: Golden Company owns 70% of the voting common stock of Silver Company. At the beginning of 2016, Silver's merchandise inventory included merchandise that was purchased from Golden in the prior year for $10,000 (the cost of that merchandise to Golden was $8,000). During 2016, Silver purchased merchandise from Golden for $32,000 (the cost of which to Golden was $22,000). At the end of 20186, Silver's merchandise inventory included merchandise purchased from Golden for $15,000 (the cost of which to Golden was $12,000). Internally generated income for 2016 was $144,000 for Golden and $80,000 for Silver. 3. In the consolidation worksheet for 2016, what is the entry required to eliminate the effect of intercompany sales of merchandise on beginning inventory? a. Debit Retained Earnings Golden $1,400, Debit Retained Earnings = Silver $600, Credit Cost of Goods Sold $2,000 b. Debit Retained Earnings Golden $1,400, Debit Retained Earnings Silver $600, Credit Inventory $2,000 Debit Retained Earnings Golden $2,000, Credit Cost of Goods Sold $2,000 d. Debit Retained Earnings Golden $2,000, Credit Inventory $2,000 o Correct Answer: C In the consolidation worksheet for 2016, what is the entry required to eliminate the effect of intercompany sales of merchandise during the year? Debit Sales $32,000, Credit Cost of Goods Sold $32,000 Debit Sales $22,000, Credit Cost of Goods Sold $22,000 Debit Sales $10,000, Credit Cost of Goods Sold $10,000 None of these a0 oo Correct Answer: A 5. In the consolidation worksheet for 2016, the entry required to eliminate the effect of intercompany sales of merchandise on ending inventory will include which of the following amounts? Credit Cost of Goods Sold $3,000 Credit Inventory $15,000 Debit Retained Earnings Golden $3,000 Credit Retained Earnings Silver 12,000 None of these pange Correct Answer: E Chapter 4 Review Question 6. 7. In the consolidated worksheet for 2016, what is the consolidated net income? a. $224,000 b. $223,000 $225,000 d. $219,000 e. $229,000 Correct Answer: B What is the share of the non-controlling interest of the consolidated net income for 2016? a. $24,000 b. $23,700 $24,300 d. $25,000 e. $25,500 Correct Answer: A