1. Pop, Inc., owns 80 percent of Son, Inc. During 2016, Pop sold goods with a 40 percent gross profit to Son. Son sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of Pop and Son income statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany sales.
b. Sales and cost of goods sold should be reduced by 80 percent of the intercompany sales.
c. Net income should be reduced by 80 percent of the gross profit on intercompany sales.
d. No adjustment is necessary.
2. Car Company had the following transactions with affiliated parties during 2016.
• Sales of $180 to Den, with $60 gross profit. Den had $45 of this inventory on hand at year-end. Car owns a 15 percent interest in Den and does not exert significant influence.
• Purchases of raw materials totaling $720 from Ken Corporation, a wholly owned subsidiary. Ken's gross profit on the sale was $144. Car had $180 of this inventory remaining on December 31, 2016.
Before eliminating entries, Car had consolidated current assets of $960. What amount should Car report in its December 31, 2016, consolidated balance sheet for current assets?
a. $960
b. $951
c. $924
d. $303
3. Pam Corporation owns 80 percent of Sun's common stock. During 2016, Pam sold Sun $750 of inventory on the same terms as sales made to third parties. Sun sold 100 percent of the inventory purchased from Pam in 2016. The following information pertains to Sun's and Pam's sales for 2016:
_____________________ Pam ______________ Sun
Sales ..........................$3,000 ...............$2,100
Cost of sales .................1,200 ..................1,050
................................$1,800 ................$1,050
What amount should Pam report as cost of sales in its 2016 consolidated income statement?
a. $2,250
b. $2,040
c. $1,500
d. $1,290