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LO1
1. The material sale of inventory items by a parent company to an
affiliated company
a. $870,000.
b. $880,000.
c. $920,000.
d. $970,000.
©2009 Pearson Education, Inc. publishing as Prentice Hall
5-2
LO2
6. If the sale referred to above was a downstream sale, by what
amount must Inventory be reduced to reflect the correct balance
as of the end of 2004?
a. $ 3,000.
b. $10,000.
c. $14,000.
d. $20,000.
LO2
7. For 2004, consolidated net income will be what amount if the
intercompany sale was downstream?
a. $475,600.
b. $476,800.
c. $486,400.
d. $506,000.
LO2
8. If the intercompany sale mentioned above was an upstream sale,
what will be the reported amount of total sales revenue for
2005?
a. $1,025,000.
b. $1,900,000.
c. $1,950,000.
d. $2,000,000.
LO2
9. If the intercompany sale was an upstream sale, the total amount
of consolidated cost of goods sold for 2005 will be?
a. $300,000.
b. $430,000.
c. $470,000.
d. $477,000.
Duck Whistle
LO3
10. The consolidated income statement for Duck Corporation and
subsidiary for the year ended December 31, 2005 will show
consolidated cost of sales of?
a. $ 50,000.
b. $ 76,250.
c. $133,750.
d. $160,000.
LO3
11. Ducks income from Whistle for 2005 is?
a. $54,250.
b. $56,000.
c. $62,125.
d. $80,500.
a. $ 4,000.
b. $ 5,000.
c. $ 8,000.
d. $10,000.
Wren Arid
Sales Revenue $ 1,000,000 $ 600,000
Cost of Goods Sold 500,000 400,000
Operating Expenses 500,000 80,000
Separate incomes $ 250,000 $ 120,000
LO3
13. The 2005 consolidated income statement showed cost of goods
sold of
a. $720,000.
b. $880,000.
c. $900,000.
d. $920,000.
a. $56,000.
b. $76,000.
c. $80,000.
d. $96,000.
LO3
15. The 2005 consolidated income statement showed noncontrolling
income of
a. $ 2,000.
b. $ 8,000.
c. $20,000.
d. $24,000.
LO4
16. On January 1, 2004, Darter Industries acquired an 80% interest
in Thermal Company to insure a steady supply of Thermals
inventory that Darter uses in its own manufacturing businesses.
Thermal sold 100% of its output to Darter during 2004 and 2005
at a markup of 120% of Thermals cost. Darter had $9,600 of
these items remaining in its January 1, 2005 inventory and no
items on December 31, 2005. If Darter neglected to eliminate
unrealized profits from all intercompany sales from Thermal,
consolidated net income for 2005 was
a. overstated by $320.
b. understated by $400.
c. overstated by $2,400.
d. unaffected because Darter buys 100% of Thermals output.
a. $512,000.
b. $526,000.
c. $522,500.
d. $528,000.
LO4
18. What amount of unrealized profit did Grebe Company have at the
end of 2004?
a. $10,000.
b. $12,500.
c. $50,000.
d. $62,500.
LO5
19. A parent company regularly sells merchandise to its 70%-owned
3. subsidiary. Which of the following statements describes the
computation of minority interest income?
a. $ 8,400.
b. $ 9,200.
c. $10,000.
c. $10,800.
Required:
LO3&4
Exercise 2
Required:
Tern Harbor
Sales Revenue $ 1,000,000 $ 600,000
Income from Harbor 80,000
Cost of Goods Sold ( 600,000 )( 300,000 )
Expenses ( 200,000 )( 200,000 )
Net Income $ 280,000 $ 100,000
During 2004 Tern sold merchandise that cost $120,000 to Harbor for
$180,000. Half of this merchandise remained in Harbors inventory at
December 31, 2004. During 2005, Tern sold merchandise that cost
$150,000 to Harbor for $225,000. One-third of this merchandise
remained in Harbors December 31, 2005 inventory.
Required:
Prepare a consolidated income statement for Tern Corporation and
Subsidiary for 2005.
LO3&4
Exercise 4
Egret Tick
Sales Revenue $ 330,000 $ 180,000
Income from Tick 30,400
Cost of Goods Sold ( 190,000 )( 112,000 )
Expenses ( 65,000 )( 30,000 )
Net Income $ 105,400 $ 38,000
Required:
Prepare a consolidated income statement for Egret Corporation and
Subsidiary for 2005.
Required:
Bittern Reed
Sales Revenue $ 400,000 $ 220,000
Income from Reed 75,600
Cost of Goods Sold ( 210,000 )( 72,000 )
Expenses ( 85,000 )( 40,000 )
Net Income $ 180,600 $ 108,000
Required:
Prepare a consolidated income statement for Bittern Corporation and
Subsidiary for 2005.
LO 3&4
Exercise 7
Egret Corporation sold inventory items to Plume during 2004 and 2005
as follows:
2004 2005
Egrets sales to Plume $ 5,000 $ 6,000
Egrets cost of sales to Plume 3,000 3,500
Unrealized profit at year-end 1,000 1,500
Current year:
Required:
Retained
Earnings 1/1 10,000 8,000
Add:
Net income 16,000 9,000
Less:
Dividends ( 10,000) ( 5,000)
Retained
Earnings 12/31 $ 16,000 $12,000
BALANCE SHEET
Cash 5,400 3,000
Accounts
Receivable-net 14,000 10,000
Dividend
Receivable 2,000
Cardinal Robin
Sales Revenue $ 830,000 $ 290,000
Income from Robin 36,900
Cost of Goods Sold ( 530,000 )( 197,000 )
Expenses ( 179,000 )( 52,000 )
Net Income $ 157,900 $ 41,000
Required:
Prepare a consolidated income statement for Cardinal Corporation and
Subsidiary for 2005.
LO5
Exercise 9
Required:
©2009 Pearson Education, Inc. publishing as Prentice Hall
5-14
Prepare a schedule to determine Plover Corporations net income for
2003, 2004, and 2005.
LO5
Exercise 10
Required:
1. c
2. c
3. b
4. d
7. b
13. a 500,000+400,000-
200,000+20,000
14. b 120,000*.8-200,000*.2*.5
18. b
Requirement 1
Requirement 2
Exercise 2
Requirement 1
Requirement 2
Debit Credit
Sales Revenue 650,000
Cost of Goods Sold 650,000
Exercise 3
©2009 Pearson Education, Inc. publishing as Prentice Hall
5-19
Tern Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Exercise 4
Exercise 5
Exercise 6
Preliminary computations:
Unrealized profit in beginning inventory equals:
$49,000 ($49,000/1.4) = $ 14,000
Exercise 7
Exercise 8
Cardinal Corporation and Subsidiary
Consolidated Income Statement
©2009 Pearson Education, Inc. publishing as Prentice Hall
5-22
for the year ended December 31, 2005
Exercise 9
Exercise 10