FUNDAMENTALS OF ADVANCED ACCOUNTING >I
6th Edition
ISBN: 9781307007350
Author: Hoyle
Publisher: MCG/CREATE
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Chapter 5, Problem 1P
To determine
Identify the appropriate answer for the given statement from the given choices.
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Choose the correct. What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?a. Revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream.b. Intra-entity sales result in gross profit overstatements regardless of amounts remaining in ending inventory.c. Gross profits must be deferred indefinitely because sales among affiliates always remain in the consolidated group.d. When intra-entity sales remain in ending inventory, control of the goods has not changed.
Please answer the following questions relating to unrealized profit in a business combination.
1) Intra entity transfers between the components of business combinations are quite common. Why do these intra company transactions occur frequently?
2) How are unrealized inventory gross profit created, and what are the necessary consolidation entries created to account for these gains?
3) How do intra entity profit present in any year affect the noncontrolling Interest calculation?
The consolidation procedures for intercompany sales are similar for upstream and downstreams sales
a. Under a periodic inventory system but not under a perpetual inventory system
b. If the merchandise is transferred at cost
c. If the merchandise is immediately sold to outside parties
d. When the subsidiary is 100% owned.
Sales from one subsidiary to another are called
a. Downstream sales
b. Inter subsidiary sales
c. Horizontal sales
d. Upstream sales
Non-controlling interest in consolidated income is never affected by
a. Sale of Parent to unaffiliated company
b. Downstream sales
c. Upstream Sales
d. Non-controlling interest is affected by all sales
Chapter 5 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
Ch. 5 - Prob. 1QCh. 5 - Prob. 2QCh. 5 - Prob. 3QCh. 5 - Prob. 4QCh. 5 - James, Inc., sells inventory to Matthews Company,...Ch. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 10Q
Ch. 5 - Prob. 11QCh. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Use the same information as in problem (5) except...Ch. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - What is the total of consolidated cost of goods...Ch. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - What is the consolidated total for inventory at...Ch. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 1DYSCh. 5 - Prob. 2DYS
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- Explain why consolidated entities defer intra-entity gross profit in ending inventory and the consolidation procedures required subsequently to recognize profits.arrow_forwardDownstream sales that remained unsold by the subsidiary as of the year-end A.will decrease both consolidated net income attributable to parent and consolidated netincome attributable to non-controlling interest for the current yearB.will increase consolidated net income attributable to parent for the current year.C.will decrease consolidated net income attributable to parent for the current year.D.will increase both consolidated net income attributable to parent and consolidated netincome attributable to non-controlling interest for the current year.arrow_forwardStarting from the separate cost of goods sold of the affiliates, the consolidated cost of goods sold will be affected by all of the following, except: A. Amortization of the excess of inventory FV over BV of the subsidiary B. Unrealized profit on ending inventory C. Excess of inventory FV over BV of the subsidiary at the date of acquisition D. Realized profit on beginning inventoryarrow_forward
- A company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year. This results in a. an accounting change that should be reported prospectively. b. an accounting change that should be reported by restating the financial statements of all prior periods presented. c. a correction of an error. d. neither an accounting change nor a correction of an error.arrow_forwardThe non-controlling interest in consolidated income when the selling affiliate isan 80% owned subsidiary is calculated by multiplying the non-controllingminority delete minority ownership percentage by the subsidiary’s reported netincome. A. Plus realized profit in ending inventory less realized profit in beginning inventory B. Less unrealized profit in ending inventory plus realized profit in beginning inventory C. Less realized profit in ending inventory plus realized profit in beginning inventory. D. Plus unrealized profit in ending inventory less unrealized profit in beginning inventoryarrow_forwardWhich statement is incorrect concerning the preparation of consolidated financial statements? A. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six months. B. The financial statements of the parent and its subsidiaries shall be consolidated on a line by line basis nu adding together like items of assets, liabilities, equity, income and expenses. C. Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. D. Intragroup dividends shall be eliminated in full.arrow_forward
- Starting from the separate inventory balances of the affiliates, the consolidated inventory balance will be affected by all of the following, except: A. Excess of inventory FV over BV of the subsidiary at the date of acquisition B. Unrealized profit on ending inventory C. Realized profit on beginning inventory D. Amortization of the excess of inventory FV over BV of the subsidiary at the date of acquisitionarrow_forwardA) When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when selling affiliate is a. The parent, and the subsidiary is less than wholly owned. b. The subsidiary, and the subsidiary are less than wholly owned c. A wholly owned subsidiary d. The parent of a wholly owned subsidiary. B) Gain or loss returning from an intercompany sale of equipment between a parent and a subsidiary is a. Considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidation statements. b. Considered to be unrealized in the consolidated statements until the equipment is sold to a third party c. Amortized over a period not less than 2 years and not greater than 40 years. d. Recognized in the consolidated statements in the year of the salearrow_forwardStarting from the separate cost of goods sold of the affiliates, the consolidatedcost of goods sold will be affectedby all of the following, except: a.Realized profit on beginning inventoryb.Excess of inventory FV over BV of the subsidiary at the date of acquisitionc.Amortization of the excess of inventory FV over BV of the subsidiaryd. Unrealized profit on ending inventoryarrow_forward
- 1) Merchandise invested by an entity under a joint operation agreement should include an entry of a)Debit to Joint Operation under the books of the Joint Operators other than the party who invested b)Credit to merchandise inventory of the Joint Operator who contributed merchandise c)Credit to merchandise Inventory of all the Joint Operators d)Credit to Joint Operation under the books of the party investing the merchandise 2) The interest of the retiring or withdrawing partner is usually measured by his capital balance before his retirement or withdrawal adjusted by the following adjustments except a)profit or loss after the date of the partner’s withdrawal or retirement b)changes in the valuation of all assets and liabilities c)errors in net income in prior years d)profit or loss from the operation from the last closing date of the date of his retirement or withdrawal 3)In case of admission of a partner, the first adjustment that need to be prepared is a) The…arrow_forwardWhat should the adjustment for consolidated entry be when a Subsidiary sold inventory to Parent at a lower cost. Example: S bought inventory at a cost of 300. S sold to P at 200.arrow_forwardStatement 1: The preparation of consolidated financial statements after acquisition is materially different concept from preparing them in the acquisition date in the sense that reciprocal accounts are eliminated and remaining balances are combined. Statement 2: All revenues and expenses of individual consolidating companies arising from transactions and actions with affiliated companies are included in the consolidated financial statements. a. Only Statement 1 is correct b. Both statements are correct c. Only Statement 2 is correct d. Both statements are incorrectarrow_forward
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