Question Type: Multiple Choice

1) Sales from one subsidiary to another are called:

a) downstream sales.

b) upstream sales.

c) intersubsidiary sales.

d) horizontal sales.

2) Noncontrolling interest in consolidated income is never affected by:

a) upstream sales.

b) downstream sales.

c) horizontal sales.

d) Noncontrolling interest is affected by all sales.

3) Failure to eliminate intercompany sales would result in an overstatement of consolidated:

a) net income.

b) gross profit.

c) cost of sales.

d) all of these.

4) Pruitt Company owns 80% of Stoney Companys common stock. During 2017, Stoney sold $400,000 of merchandise to Pruitt. At December 31, 2017, one-fourth of the merchandise remained in Pruitts inventory. In 2017, gross profit percentages were 25% for Pruitt and 30% for Stoney. The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is:

a) $80,000.

b) $24,000.

c) $30,000.

d) $25,000.

5) The noncontrolling interests share of the selling affiliates profit on intercompany sales is considered to be realized under:

a) partial elimination.

b) total elimination.

c) 100% elimination.

d) both total and 100% elimination.

6) The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a:

a) credit to Ending Inventory (Cost of Sales).

b) credit to Sales.

c) debit to Ending Inventory (Cost of Sales).

d) debit to Inventory - Balance Sheet.

7) Petunia Company acquired an 80% interest in Shaman Company in 2016. In 2017 and 2018, Shaman reported net income of $400,000 and $480,000, respectively. During 2017, Shaman sold $80,000 of merchandise to Petunia for a $20,000 profit. Petunia sold the merchandise to outsiders during 2018 for $140,000. For consolidation purposes, what is the noncontrolling interests share of Shaman's 2017 and 2018 net income?

a) $90,000 and $96,000.

b) $100,000 and $76,000.

c) $84,000 and $92,000.

d) $76,000 and $100,000.

8) A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2016. Under the partial equity method, the workpaper entry in 2017 to recognize the intercompany profit in beginning inventory realized during 2017 includes a debit to:

a) Retained Earnings - P.

b) Noncontrolling interest.

c) Cost of Sales.

d) both Retained Earnings - P and Noncontrolling Interest.

9) The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiarys reported net income:

a) plus unrealized profit in ending inventory less unrealized profit in beginning inventory.

b) plus realized profit in ending inventory less realized profit in beginning inventory.

c) less unrealized profit in ending inventory plus realized profit in beginning inventory.

d) less realized profit in ending inventory plus realized profit in beginning inventory.

10) In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:

a) not be eliminated.

b) be eliminated in full.

c) be eliminated to the extent of the parent companys controlling interest in the subsidiary.

d) be eliminated to the extent of the noncontrolling interest in the subsidiary.