1. Which of the following accounts need not be eliminated in consolidation?

[a] Intercompany Sales

[b] Intercompany Cost of Sales

[c] Intercompany Interest Expense

[d] Long term Intercompany Receivables

[e] None of the above

2. The material sale of inventory items by a parent company to an affiliated company

[a] enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining

[b] affects consolidated net income under a periodic inventory system but not under a perpetual inventory system

[c] does not result in consolidated income until the merchandise is sold to outside entities

[d]does not require a working paper adjustment if the merchandise was transferred at cost

3. Fi Corporation regularly sells inventory items to its subsidiary, Pe, Inc. If unrealized profits in Pe's 2019 year-end inventory exceed the unrealized profits in its 2020 year-end inventory, 2020 combined

[a] cost of sales will be less than consolidated cost of sales in 2020

[b] gross profit will be greater than consolidated gross profit in 2020

[c] sales will be less than consolidated sales in 2020

[d] cost of sales will be greater than consolidated cost of sales in 2020

4.James Corporation, an 80%-owned subsidiary of Thomas Company, buys half of its raw materials from Thomas. The transfer price is exactly the same price as James pays to buy identical raw materials from outside suppliers and the same price as Thomas sells the materials to unrelated customers. In preparing consolidated statements for Thomas Company and Subsidiary James Corporation,

[a] the intercompany transactions can be ignored because the transfer price represents arm's length bargaining.

[b] any unrealized profit from intercompany sales remaining in Thomas' ending inventory must be offset against the unrealized profit in Thomas' beginning inventory.

[c] any unrealized profit on the intercompany transactions in James's ending inventory is eliminated in its entirety.

[d] eighty percent of any unrealized profit on the intercompany transactions in James's ending inventory is eliminated.

5. S1: Consolidated statements worksheet elimination of intercompany sales of inventory does affect consolidated net income. S2: For consolidation purposes, profits recorded on an intercompany sale of inventory are realized in the period of intercompany sale.

[a] Statement 1 is true.

[b] Statement 2 is true

[c] Both statements are true.

[d] Both statements are false.