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A wholly-owned subsidiary sells merchandise to its parent at a markup of 25% on cost. During the current year, the parent paid $725,000 for merchandise

  1. A wholly-owned subsidiary sells merchandise to its parent at a markup of 25% on cost. During the current year, the parent paid $725,000 for merchandise received from the subsidiary. By year-end, the parent has sold $600,000 of the merchandise to outside customers for $900,000, but still holds the other $125,000 in its ending inventory. The parent uses the complete equity method to record its investment in subsidiary on its own books. What is the impact of the above information on the parent's equity in net income of subsidiary for the year, as reported on the parent's books?

    A.

    Add $100,000

    B.

    Subtract $100,000

    C.

    Add $25,000

    D.

    Subtract $25,000

  1. P Corporation acquires all of S Company's voting stock. At the date of acquisition, the fair value of S Company's long-term debt is $100 greater than its book value. The debt has a 5-year remaining life at the date of acquisition. When consolidating S Company's financial statements for the first year following acquisition, how will eliminating entry (O) affect long-term debt and interest expense?

    A.

    $20 credit to long-term debt, $20 debit to interest expense

    B.

    $20 debit to long-term debt, $20 credit to interest expense

    C.

    $80 credit to long-term debt, $80 debit to interest expense

    D.

    $80 debit to long-term debt, $80 credit to interest expense

  1. The consolidated balance sheet of a parent and subsidiary reports account balances as if the parent accounted for its investment in the subsidiary as a:

    A.

    Investment with no influence.

    B.

    Variable interest entity.

    C.

    Merger.

    D.

    Significant influence investment.

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