task

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1. phast corporation owns a 80% interest in stechno company, acquired several years ago at a cost equal to book value and fair value. stechno sells merchandise to phast for the first time in 2011, and some is unsold at december 31, 2011. in computing income from the investee for 2011 under the equity method, phast uses which equation? (points : 2)
80% of stechno's income less 100% of the unrealized profit in phast's ending inventory
80% of stechno's income plus 100% of the unrealized profit in phast's ending inventory
80% of stechno's income less 80% of the unrealized profit in phast's ending inventory
80% of stechno's income plus 80% of the unrealized profit in phast's ending inventory

2. a(n) ___________ sale is a sale by a parent company to a subsidiary. a(n) __________ sale is a sale by a subsidiary to a parent company. (points : 2)
deferred; realized
realized; deferred
upstream; downstream
downstream; upstream

3. paggle corporation owns 80% of spillway inc.'s common stock that was purchased at its underlying book value. at the time of purchase, the book value and fair value of spillway's net assets were equal. the two companies report the following information for 2011 and 2012.
during 2011, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. as of the end of 2011, 30% of the inventory was unsold. in 2012, the remaining inventory was resold outside the consolidated entity.
2011 selected data: paggle spillway
sales revenue $600,000 $320,000
cost of goods sold 320,000 155,000
other expenses 100,000 89,000
net income $180,000 $76,000
dividends paid 19,000 0
2012 selected data: paggle spillway
sales revenue $580,000 $445,000
cost of goods sold 300,000 180,000
other expenses 130,000 171,000
net income $150,000 $94,000
dividends paid 16,000 5,000


if the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2011 would be

(points : 2)
$870,000.
$880,000.
$920,000.
$970,000.

4. please use the information listed in question 3 to answer this question.

for 2011, consolidated net income will be what amount if the inter-company sale was downstream? (points : 2)
$180,000
$253,000
$256,000
$259,000

5. pouch corporation acquired an 80% interest in shenley corporation on january 1, 2012, when the book values of shenley's assets and liabilities were equal to their fair values. the cost of the 80% interest was equal to 80% of the book value of shenley's net assets. during 2012, pouch sold merchandise that cost $70,000 to shenley for $86,000. on december 31, 2012, three-fourths of the merchandise acquired from pouch remained in shenley's inventory. separate incomes (investment income not included) of the two companies are as follows:
pouch shenley
sales revenue $180,000 $160,000
cost of goods sold 120,000 90,000
operating expenses 17,000 21,000
separate incomes $ 43,000 $ 49,000


the consolidated income statement for pouch corporation and subsidiary for the year ended december 31, 2012 will show consolidated cost of sales of
(points : 2)
$120,000.
$136,000.
$148,000.
$210,000.

6. on january 1, 2011, plastam industries acquired an 80% interest in sparta company to assure a steady supply of sparta's inventory that plastam uses in its own manufacturing businesses. sparta sold 100% of its output to plastam during 2011 and 2012 at a markup of 125% of sparta's cost. plastam had $12,000 of these items remaining in its inventory at december 31, 2012. if plastam neglected to eliminate unrealized profits from all intercompany sales from sparta, the inventory on the consolidated balance sheet at december 31, 2012 was
(points : 2)
overstated by $1,920.
understated by $1,920.
overstated by $2,400.
understated by $2,400.

7. a parent company regularly sells merchandise to its 70%-owned subsidiary. which of the following statements describes the computation of noncontrolling interest share?
(points : 2)
the subsidiary's net income times 30%
(the subsidiary's net income × 30%) + unrealized profits in the beginning inventory - unrealized profits in the ending inventory
(the subsidiary's net income + unrealized profits in the beginning inventory - unrealized profits in the ending inventory) × 30%
(the subsidiary's net income + unrealized profits in the ending inventory - unrealized profits in the beginning inventory) × 30%

8. swamp co., a 55%-owned subsidiary of pond inc., made the following entry to record a sale of merchandise to pond:
accounts receivable 40,000
sales revenue 40,000
all swamp sales are at 125% of cost. one-fourth of this merchandise remained in the pond's inventory at year-end. a working paper entry to eliminate unrealized profits from consolidated inventory would include a credit to inventory in the amount of
(points : 2)
$2,000.
$2,500.
$8,000.
$10,000.

9. shalles corporation, a 80%-owned subsidiary of pani corporation, sold inventory items to its parent at a $48,000 profit in 2012. pani resold one-third of this inventory to outside entities. shalles reported net income of $200,000 for 2012. noncontrolling interest share of consolidated net income that will appear in the income statement for 2012 is
(points : 2)
$30,400.
$32,000.
$33,600.
$40,000.

10. the material sale of inventory items by a parent company to an affiliated company (points : 2)
enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
does not result in consolidated income until the merchandise is sold to outside parties.
does not require a working paper adjustment if the merchandise was transferred at cost.
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