Multiple choice

1. During the year, a parent has sold $75,000 worth of goods to the subsidiary, which had cost the parent $35,000. At balance date, 50% of these goods were still in the subsidiary's inventory. The consolidation journal entry to eliminate the profit in ending inventory would be?

a) Dr Closing Inventory (cost of goods sold) 40,000, Cr Inventory (asset) 40,000

b) Dr Closing Inventory (cost of goods sold) 20,000, Cr Inventory (asset) 20,000

c) Dr Inventory (asset) 40,000, Cr Closing Inventory (cost of goods sold) 40,000

d) Dr Inventory (asset) 20,000, Cr Closing Inventory (cost of goods sold) 20,000

2. During the year, a parent has sold $65,000 worth of goods to the subsidiary, which had cost the parent $30,000. At balance date, 40% of these goods were still in the subsidiary's inventory. Assuming a tax rate of 28%, the consolidation journal entry to adjust the tax expense would be?

a) Dr Tax Expense 3,920, Cr Deferred Tax Asset (DTA) 3,920

b) Dr Tax Expense 9,800, Cr Deferred Tax Asset (DTA) 9,800

c) Dr Deferred Tax Asset (DTA) 3,920, Cr Tax Expense 3,920

d) Dr Deferred Tax Asset (DTA) 9,800, Cr Tax Expense 9,800

3. During the current year, a parent loaned $100,000 to its subsidiary at a 6% interest rate. The balance date for both companies is 31 December. What consolidation journal entries would need to be performed?

a) Elimination of the consolidated loan balance asset and liability only

b) Elimination of the consolidated part-year interest expense and income only

c) Elimination of the consolidated loan balance asset and liability, elimination of the consolidated part-year interest expense and income and adjustment of the consolidated tax expense

d) Elimination of the consolidated loan balance asset and liability, and elimination of the consolidated part-year interest expense and income

4. Assume that on 01/10/2020, Jones Ltd purchased machinery from Ivor Ltd for $95,000. The machinery had originally been purchased by Ivor Ltd on 01/01/2016 for $140,000. Accumulated depreciation to 31/12/2019 for Ivor Ltd was $80,000. What would be the gain or loss on sale?

a) $45,000 loss on sale

b) $35,000 gain on sale

c) $45,000 gain on sale

d) $35,000 loss on sale

5. Assume that on 01/10/2020, Parent Ltd purchased equipment for $90,000 from Sub Ltd. The equipment had originally been purchased by Sub Ltd on 01/01/2017 for $130,000. Both follow IRD rules for part year depreciation, and both calculate depreciation annually (i.e once a year). Both depreciate equipment at 20% diminishing value, with no residual value. What would be the consolidation journal entry to adjust the 2020 depreciation? Assume balance date is 31/12.

a) Dr Depreciation Expense 6,000 Cr Accumulated Depreciation 6,000

b) Dr Depreciation Expense 4,688 Cr Accumulated Depreciation 4,688

c) Dr Depreciation Expense 8,812 Cr Accumulated Depreciation 8,812

d) Dr Depreciation Expense 8,000 Cr Accumulated Depreciation 8,000