7)Pat Inc. owns 90% of the outstanding voting common stock of Sam Co. In 2017, Sam had sold inventory costing $28,800 to Pat for $48,000. All but 25% of this merchandise was consumed by Pat during 2017. The remainder was used during the first few weeks of 2018.

What amount of gross profit would Pat have realized in 2018 related to Sams 2017 sale of inventory to Pat? (Hint: For an intra-entity transaction, in the year when the inter-entity transferred merchandise is not sold to a third-party or is not consumed then the parent company will defer the unearned gross profit. This question is about an upstream sale from the subsidiary Sam to its parent company Pat. In an upstream sale, in the year when the inter-entity sale is not sold to a third-party or is not consumed then the parent company will defer the unearned gross profit based on its percentage of ownership in the subsidiary. In the subsequent year if that inventory is sold or consumed then the previously deferred gross profit must now be realized by the parent company.) A. $0.

B. $4,320. C. $6,480. D. $12,960. E. $19,200.

8)On May 1, 2017, Pepper Company issues 30,000 shares of its $12 par value ($25 fair value) common stock in exchange for all of the shares of Salt's common stock. Pepper paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Pepper has $700,000 in its common stock account and $300,000 in its additional paid-in capital account (APIC).

What entries would Pepper use to record this acquisition?

A. Dr. Expenses and Cr. Cash. B. Dr. Common Stock and Cr. Cash C. Dr. Investment and Cr. Cash D. Dr. Investment and Cr. Common Stock and Cr. APIC E. Dr. Investment and Cr. Common Stock.

9) On January 1, 2017, Pawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2017, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2018 it reported income of $75,000 and dividends of $30,000. Assume Pawson has the ability to significantly influence the operations of Sacco.

The amount allocated to goodwill at January 1, 2017, is

A. $25,000. B. $13,000. C. $9,000. D. $10,000. E. $16,000.

10)Pace Company owns 80% of the common stock of Speed Co. and uses the equity method to account for the investment. During 2017, Speed reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2017, how will Paces investment account change related to this investment?

A. $136,000 increase. B. $200,000 increase. C. $0 change. D. $136,000 decrease. E. $200,000 decrease.