Multiple Choice Questions
1. Suzlon, a subsidiary of Patni, provides services to Patni. During 2013, Suzlon charged $3,000,000 for services provided to Patni. Cost of the services provided was $2,100,000. How should the consolidated income statement report these services?

2. A parent makes an interest-bearing loan to its 90%-owned subsidiary in 2012, which is still outstanding in 2013. The elimination entries I on the consolidation working paper for 2013, related to this loan,
a. reduce investment in subsidiary by the amount of 2012's interest revenue.
b. reduce the subsidiary's beginning retained earnings by the amount of 2012's interest revenue.
c. reduce investment in subsidiary by the amount of interest owing at the end of 2013.
d. have no effect on investment in subsidiary or the subsidiary's beginning retained earnings.
3. Petronet sells merchandise to its 80-percent-owned subsidiary Sonata at a markup of 20 percent on cost. During 2013, Petronet charges Sonata $4,000,000 for merchandise sales. Sonata's 2013 beginning inventory contains $540,000 in merchandise purchased from Petronet. Sonata's 2013 ending inventory contains $480,000 in merchandise purchased from Petronet. Petronet uses the complete equity method to record its investment in Sonata. How are Petronet's 2013 equity in net income of Sonata and 2013 consolidated income to the noncontrolling interest affected by intercompany merchandise transactions?

4. Pentamedia owns 90 percent of Sesa. At the start of 2012, Sesa sold buildings carried at $4,000,000, net, to Pentamedia for $6,000,000. The buildings had a remaining life of 10 years and straight-line depreciation is used. Pentamedia uses the complete equity method to record its investment in Sesa. Pentamedia still owns the buildings. How are Pentamedia's 2013 equity in net income of Sesa and 2013 consolidated income to the noncontrolling interest affected by the intercompany sale of buildings?

5. A parent sells land costing $35,000 to a subsidiary in 2012 for $55,000. The subsidiary sells the land in 2014 to a third party for $85,000. On the consolidated income statement for 2014, the gain on sale of land should be reported at:
a. $20,000
b. $50,000
c. $30,000
d. $ 0
6. A subsidiary sells land costing $1,000,000 to its parent in 2010 for $1,400,000. The parent owns 80 percent of the subsidiary's stock. In 2013, the parent sells the land to an outside party for $550,000. What elimination entry I is required on the 2013 consolidation working paper?
a. Debit the subsidiary's beginning retained earnings and credit the loss on sale of land for $400,000.
b. Debit investment in subsidiary and credit the loss on sale of land for $400,000.
c. Debit the subsidiary's beginning retained earnings and credit the loss on sale of land for $450,000.
d. Debit investment in subsidiary and credit the loss on sale of land for $450,000.

Transcribed Image Text:

а. ь, с. d. Service revenue $3,000,000 $3,000,000 $0 $O Service expense $0 $2,100,000 $2,100,000 $3,000,000 Noncontrolling interest in net income $0 $2,000 increase $0 $2,400 increase Equity in net income a. $10,000 increase b. 8,000 increase c. $12,000 increase d. 9,600 increase Noncontrolling interest in $0 $40,000 increase Equity in net income net income a. $200,000 increase b. $360,000 increase c. $400,000 increase d. $180,000 increase $20,000 increase