E$6-1$ Multiple$-$Choice Questions on Intercompany Inventory Transfers $[$AICPA Adapted$]$

Select the correct answer for each of the following questions:

Perez Inc. owns $80$ percent of Senior Inc. During $20$X$2.$ Perez sold goods with a $40$ percent gross profit to Senior. Senior

sold all of these goods in $20$X$2.$ For $20$X$2$ consolidated financial statements, how should the summation of Perez and Senior

income statement items be adjusted?

a$.$ Sales and Cost of Goods Sold should be reduced by the intercompany sales amount.

b$.$ Sales and Cost of Goods Sold should be reduced by $80$ percent of the intercompany sales amount.

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

d$.$ No adjustment is necessary.

Parker Corporation owns $80$ percent of Smith Inc.$\text{'}$s common stock. During $20$X$1.$ Parker sold inventory to Smith for

$$250\mathrm{.}000$ on the same terms as sales made to third parties. Smith sold all of the inventory purchased from Parker in $20$X$1.$

The following information pertains to Smith's and Parker's sales for $20$X$1$:

What amount should Parker report as cost of sales in its $20$ X $1$ consolidated income statement?

a$.$ $$750,000$

b$.$ $$680\mathrm{.}000$

c$.$ $$500\mathrm{.}000$

d$.$ $$430\mathrm{.}000$

Note: Items $3$ and $4$ are based on the following information:

Nolan owns $100$ percent of the capital stock of both Twill Corporation and Webb Corporation. Twill purchases merchandise

inventory from Webb at $140$ percent of Webb"s cost$.$ During $20$X$0.$ Webb sold to Twill merchandise that had cost it $$40,000.$

Twill sold all of this merchandise to unrelated customers for $$81,200$ during $20$ X $0.$ In preparing combined financial

statements for $20$X$0.$ Nolan's bookkeeper disregarded the common ownership of Twill and Webb.

What amount should be eliminated from cost of goods sold in the combined income statement for $20$X$0?$

a$.$ $$56\mathrm{.}000$

b$.$ $$40\mathrm{.}000$

c$.$ $$24,000$

d$.$ $$16\mathrm{.}000$

By what amount was unadjusted revenue overstated in the combined income statement for $20$X$0?$

a$.$ $$16\mathrm{.}000$

b$.$ $$40\mathrm{.}000$

c$.$ $$56\mathrm{.}000$

d$.$ $$81\mathrm{.}200$