Scroll Inc., a wholly owned subsidiary of Pirn, Inc. began operations on January 1, 20x2. The following information is from the condensed 20x2 income statements of Pirn and Scroll: Pirn Scroll Sales P500,000 P300,000 Cost of goods sold (350,000) (270,000) Gross profit P150,000 P30,000 Depreciation (40,000) (10,000) Other expenses (60,000) (15,000) Income from operations 50,000 P 5,000 Gain on sale of equipment to Scroll 12,000 Income before taxes P62,000 P 5,000 Equipment purchased by Scroll from Pirn for P36,000 on January 1, 20x2, is depreciated using the straightline method over four years. What amount should be reported as depreciation expense in Pirn’s consolidated income statements? A. 50,000 C. 44,000 B. 47,000 D. 41,000
1. Scroll Inc., a wholly owned subsidiary of Pirn, Inc. began operations on January 1, 20x2. The following
information is from the condensed 20x2 income statements of Pirn and Scroll:
Pirn Scroll
Sales P500,000 P300,000
Cost of goods sold (350,000) (270,000)
Gross profit P150,000 P30,000
Depreciation (40,000) (10,000)
Other expenses (60,000) (15,000)
Income from operations 50,000 P 5,000
Gain on sale of equipment to Scroll 12,000
Income before taxes P62,000 P 5,000
Equipment purchased by Scroll from Pirn for P36,000 on January 1, 20x2, is
method over four years. What amount should be reported as depreciation expense in Pirn’s
consolidated income statements?
A. 50,000 C. 44,000
B. 47,000 D. 41,000
2. Upper Company holds 60 percent of Lower Company’s voting shares. During the preparation of
consolidated financial statements for 20x4, the following eliminating entry was made:
Retained earnings, January 1 10,000
Land 10,000
Which of the following statements is correct?
A. Upper Company purchased land from Lower Company during 20x4.
B. Upper Company purchase land from Lower Company before January 1, 20x4.
C. Lower Company purchased land from Upper Company during 20x4.
D. Lower Company purchased land from Upper Company before January 1, 20x4.
3. Middle Company holds 60 percent of Bottom Corporation’s voting shares. Bottom has developed a new
type of production equipment that appears to be quite marketable. It spent P40,000 in developing the
equipment; however, Middle agreed to purchase the production rights for the machine for P100,000. If the
intercompany sale occurred on January 1, 20x2, and the production rights are expected to have value for
five years, at what amount should the RIGHTS be reported in the consolidated balance sheet for December
31, 20x2?
A. 0 C. 80,000
B. 32,000 D. 100,000
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