Parent company (P Co) purchased 90% of Subsidiary Company (S Co) for stock worth $100,000. S Co had a net book value of $50,000, including: bonds payable at a book value of $10,000 and a fair value of $15,000; inventory with a book value of $5,000 and a fair value of $7,000; equipment with a book value of $10,000 and a fair value of $20,000. Assume tax rate is 40%. Net deferred tax are:

Select one:

a. $6,800

b. $2,800

c. $6,120

d. $2,520

Which of the following adjustment does not occur in the consolidating process?

Select one:

a. Elimination of intra-group balance

b. Elimination of parents retained earnings

c. Elimination of investment account

d. Recognition of difference between fair value and book values

Which of the following can be used as consideration in a business combination?

Select one:

a. Debt

b. Any of the above may be used

c. Stock

d. Cash

The non-controlling interests in the subsidiary is reported as:

Select one:

a. Asset

b. Liability

c. Expense

d. Equity

Parent owns 80% equity of Subsidiary Company. During 2019, Subsidiary sold inventory costing $120,000 to Parent for $200,000. Half of the inventory was resold to external party for $130,000. The other half of the inventory remained in Parents ending inventory at the end of the 2019. How much gross profit will be allocated to non-controlling interest as a result of the sale?

Select one:

a. $80,000

b. $8,000

c. $6,000

d. $40,000

Parent Co. purchases all the common stock of Subsidiary Co. On January 1, 2010, Parent sells a machine with a net book value of $30,000 to Subsidiary for $40,000. Subsidiary uses straight-line depreciation and intends to use the machine for five years. What is the net effect of the related consolidation adjustment entries on the profit (before tax) in the year 2010?

Select one:

a. Decrease $8,000

b. Increase $8,000

c. Decrease $10,000

d. Increase $10,000