1. Scroll Inc., a wholly-owned subsidiary of Pirn, Inc. began operations on January 1, 2019. The following information is from the condensed 2019 income statements
1. Scroll Inc., a wholly-owned subsidiary of Pirn, Inc. began operations on January 1, 2019. The following
information is from the condensed 2019 income statements of Pirn and Scroll:
Pirn Scroll
Sales P 500,000 P 300,000
Cost of goods sold (350,000) (270,000)
Gross profit P 150,000 P 30,000
Depreciation ( 40,000) ( 10,000)
Other expenses ( 60,000) ( 15,000)
Income from operations P 50,000 P 5,000
Gain on sale of equipment to Scroll __12,000 _________
Income before taxes P 62,000 P 5,000
Equipment purchased by Scroll from Pirn for P36,000 on January 1, 2019, is depreciated using the
straight-line method over four years. What amount should be reported as depreciation expense in Pirn's
consolidated income statements?
2. Upper Company holds 60 percent of Lower Company's voting shares. During the preparation of
consolidated financial statements for 2019, 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 2019.
b. Upper Company purchased land from Lower Company before January 1, 2019.
c. Lower Company purchased land from Upper Company during 2019.
d. Lower Company purchased land from Upper Company Before January 1, 2019.
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, 2019, 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, 2019?
Questions 4 through 7 are based on the following information:
On January 1, 2019, Gold Company purchased a computer with an expected economic life of five years.
On January 1, 2021, Gold sold the computer to TLK Corporation and recorded the following entry:
Cash............................................................................................. 39,000
Accumulated depreciation................................................................ 16,000
Computer equipment.................................................................... 40,000
Gain on sale of equipment................................................................ 15,000
TLK Corporation holds 60 percent of Gold's voting shares. Gold reported net income of P45,000, and TLK
reported income from its own operations of P85,000 for 2014. There is no change in the estimated life of the
equipment as a result of the inter-corporate transfer.
4. In the preparation of the 2021 consolidated income statement, depreciation expense will be:
a. Debited for P5,000 in eliminating entries
b. Credited for P5,000 in the eliminating entries
c. Debited for P13,000 in the eliminating entries
d. Credited for P13,000 in the eliminating entries
5. In the preparation of the 2021 consolidated balance sheet, the computer equipment will be:
a. Debited for P1,000 c. Credited for P24,000
b. Debited for P15,000 d. Debited for P40,000
6. The income assigned to the non-controlling interest in the 2021 consolidated income statement will be:
7. The consolidated net income for 2021 will be:
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