The parent's depreciation expense is based onMultiple Choice$10$points$801$:$59\mathrm{.}33$the parent's cost.eBookReferencesthe subsidiary's cost.the consolidated entity's costthe consolidated entity's current value of the asset.What are "downstream" sales?Multiple Choice$10$points$801$:$59$:$23$Any sales made from anyone associated entity to anothereBookReferencesSales made by a parent to a subsidiary.Sales made by a subsidiary to an outside entity$-$Sales made by a subsidiary to a parent.What are "downstream" sales?Multiple ChoiceAny sales made from anyone associated entity to another.Sales made by a parent to a subsidiary.Sales made by a subsidiary to an outside entity.Sales made by a subsidiary to a parent.How does unrealized gain or loss on the intercompany sale of equipment affect the consolidated statements elimination entries?Multiple ChoiceThe gain or loss is amortized over some period not to exceed $40$ years.The gain or loss is allocated over the same useful life of the equipment.The gain or loss is permanently removed from the consolidated statements.The gain or loss is recognized in the next year, just like we recognized unrealized profit in the beginning inventory.The gain on sale of depreciable assets by a subsidiary to a parent isMultiple Choicerecorded on the separate$-$entity books of the subsidiary.not recordedrecorded on the separate$-$entity books of the parent.recorded only on the consolidated financial statements.Intercompany profits in inventory and land are realized through the eventual sale to outsiders, whereas depreciable assets are considered realized though consumption. What is realization through consumption?Multiple ChoiceBy increasing depreciation expense, we decrease the cost of the asset to its original costBy decreasing depreciation expense, we increase cost of goods sold.By increasing the asset, we realize the gain because the asset is worth more than it was originally.By decreasing depreciation expense, we increase income and thus realize the unrealized gain.Gains$/$losses on intercompany bond holdings are reported on consolidated statements after recording them on the separate$-$entity statements.True or False$08$TrueFalseWhat are "upstream" sales?Multiple ChoiceSales made by a parent to a subsidiary.Sales made by a subsidiary to a parent.Any sales made from anyone associated entity to another.Sales made by a subsidiary to an outside entity$-$Considering the concepts of a downstream or upstream sale of depreciable assets, which of the following statements is correct?Multiple ChoiceUpstream sales from the subsidiary to the parent company always result in unrealized gains or losses.Gains, but not losses, appear in the parent$-$company accounts in the year of sale and must be eliminated by the parent company in determining its investment income under the equity method of accountingThe initial effect of unrealized gains and losses from downstream sales of depreciable assets is different from the sale of non$-$depreciable assets.Gains and losses appear in the parent$-$company accounts in the year of sale and must be eliminated by the parent company in determining its investment income under the equity method of accounting.Non controlling interest is affected byMultiple Choicerealized profits on downstream transactions.unrealized profits on downstream transactions.realized profits on upstream transactions.unrealized and realized profits on upstream transactions.line depreciation method. The effect of this transaction on the amount recorded in $2022$ by the parent company Pumpkin as its investment income in the Squash wasMultiple Choicean increase of $$40,000$ if the Squash was wholly owned.an increase of $$30,000$ if the Squash was wholly owneda decrease of $$24\mathrm{.}000$ if the Squash was $80\%$ owned.a decrease of $$36,000$ if the Squash was $90\%$ ownedPavement Company acquired an $80\%$ interest in Sand Corporation on January $1,2017$ at a cost equal to carrying amount and fair value. In the same year Sand sold land costing $$30,000$ to Pavement for $$50,000.$ On July $1,2022,$ Pavement sold the land to an unrelated party for $$110,000.$ What was the gain reported on the $2022$ consolidated income statement?Multiple Choice$$48,000$$$60,000.$$$64,000.$$$80,000$Palomino Corporation purchased land from its $60\%-$owned subsidiary, Salmon Inc., in $2019$ at a cost $$30,000$ greater than Salmon's book value. In $2022,$ Palomino sold the land to an outside entity for $$40,000$ more than Palomino's carrying amount. The $2022$ consolidated income statement reported a gain on the sale of land ofMultiple Choice$$42,000.$$$40,000$$$58,000$$$70,000$ realization of intercompany profits in depreciable assets is based on the use of the asset that contains the unrealized gain.True or FalseTrueFalsePepper Company completely owns Salt Inc. On January $2,2022$ Pepper sold Salt machinery at its carrying amount of $$30,000.$ Pepper had the machinery two years before selling it and used a five$-$year straight$-$line depreciation method, with no residual value. Salt will use a three$-$year straight$-$line method. In the $2022$ consolidated income statement, the depreciation expenseMultiple Choiceneeded no adjustment.increased by $$4,000.$decreased by $$4,000.$increased by $$30,000.$Intercompany profits in depreciable assets $($and inventory and non$-$depreciable assets$)$ are eventually realized from a consolidated viewpoint.True or False:$49$TrueFalseWhich of the following is an example of an unrealized gain or loss on intercompany sale of equipment?Multiple Choice$7$:$47$Any gain or loss on the sale of equipment recorded by any type of sale $($either to an affiliate or to an outsider$)$ by either the parent or the subsidiary.cesA difference between the parent's cost and the price which it sells the equipment to the subsidiary.A gain recorded only by the parent which should also be recorded by the subsidiary.A subsidiary's gain or loss on the sale of equipment bought from the parent and now sold to an outsider.On January $1,2022,$ Polo Corporation sold equipment with a carrying amount of $$40,000$ and a $20-$year remaining useful life to its wholly owned subsidiary, Solo Corporation, for $$60,000.$ Both Polo and Solo use the straight$-$ine depreciation method, assuming no residual value. On December $31,2022,$ the separate company financial statements held the following balances associated with the equipmentPolo Corporation:Gain on sale of equipment, $$20,000$Solo Corporation:Depreciation expense, $$3,000$Equipment, $$60,000$Accumulated depreciation, $$3,000$A working paper entry to consolidate the financial statements of Polo and Solo on December $31,2022$ included a:Multiple Choicecredit to depreciation expense for $$3,000.$debit to gain on sale of equipment for $$19,000.$credit to gain on sale of equipment for $$20,000.$debit to accumulated depreciation for $$1,000.$