4. Skipper Company owns all the outstanding common stock of Anchorage Inc. During 2010, Skipper sells merchandise to Anchorage that is in turn sold to outsiders. None of the intercompany merchandise remains in Anchorage's year-end inventory, but some of the intercompany purchases from Skipper have not yet been paid. Identify the accounts that will reflect incorrect balances in the consolidated financial statements if no adjustments are made:

a) Accounts Receivable and Accounts Payable

b) Sales, Cost of Goods Sold, Inventory, Accounts Receivable

c) Sales, Cost of Goods Sold, Accounts Receivable, and Accounts Payable

d) Accounts Payable, Inventory, and Net Income

Answer:

5. On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000.P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2017?

a) no effect

b) increase of $12,000.

c) decrease of $12,000.

d) increase of $3,000.

Answer: