1. Statement 1: Inventory sales from a parent to one of its subsidiaries are referred to as downstream sales. Statement 2: Because all intercompany transactions are eliminated in consolidation, the use of improper or unfair transfer prices has no consequences for consolidation reporting purposes

a. S1-True; S2-True

b. S1-True S2-False

c. S1-False 52-True

d. S1-False: 52-False

2. Statement 1: Downstream intercompany inventory transfers at cost to a 100% owned subsidiary need not be eliminated in consolidation. Statement 2: Intercompany inventory transfers at cost need not be eliminated in consolidation

a. S1- True; S2- True

b. S1- True; S2- False

c. S1- False; S2- True

d. S1- False; S2- False

3. Statement 1 (S1): When a noncontrolling interest exists, intercompany sales on downstream intercompany inventory transfers need not be eliminated for consolidation purposes. Statement 2 (S2): If an intercompany inventory transfer occurs in 2020 and all this inventory is not resold to an outside third party until 2021, the intercompany sale is eliminated in consolidation in 2021 only.

a. S1- True; S2- True

b. S1- True; S2- False

c. S1- False; S2- True

d. S1- False; S2- False

4. Statement 1 (S1): If an intercompany inventory transfer occurs in 2020 and all this inventory is not resold to an outside third party until 2021, the intercompany sale is eliminated in consolidation in 2020 only. Statement 2 (S2): If an intercompany inventory transfer occurs in 2020 and all this inventory is not resold to an outside third party until 2021, the intercompany sale is eliminated in consolidation in 2020 and 2021

a. S1- True; S2- True

b. S1- True; S2- False

c. S1- False; S2- True

d. S1- False; S2- False

5. PP owns 80% of SS. During 2019, PP sold goods with a 40% gross profit to SS. SS sold all these goods in 2019. For 2019 consolidated financial statements, how should the summation of PP and SS income statement items be adjusted?

a. sales and cost of sales should be reduced by intercompany sales

b. sales and cost of sales should be reduced by 80% of the intercompany sales

c. Net income should be reduced by 80% of the gross profit on intercompany sales

d. no adjustment is necessary