Fluent Essays

For the instruction and information, check the attachment below. Due on Friday, October 8th, before 10 PM. US central time. 1. There are two parts of this work, please check the attachment carefully. 2. Part 1 is about complete the Journal entries for each situation. 3. Part 2 is some multiple choice questions. Please complete these multiple questions with correct anwser. Homework 5 Part 1 - Original AICPA released simulation Peterson Co. owns 100\% of the outstanding common stock of Silver Corp. For each of the situations below, prepare Petersons eliminating journal entries required for consolidation purposes for the year ended December 31, Year 3. Situation 1. On January 1, Year 3, Peterson sold equipment to Silver for $120,000, which was originally purchased on January 1, Year 1, for $100,000. Peterson was depreciating the equipment over 10 years using straight-line depreciation. There was no salvage value. Assume all other appropriate year-end and income tax journal entries have been made. Situation 2. Throughout Year 3, Peterson sold merchandise costing $30,000 to silver at a price of $50,000. Silver sold 60\% of the inventory by December 31, Year 3. Silver remitted payment to Peterson before year end. 1. A 70\%-owned subsidiary declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the consolidated balance sheet? a. Decreases in both retained earnings and the noncontrolling interest. b. No effect on either retained earnings or the noncontrolling interest. c. No effect on retained earnings and a decrease in the noncontrolling interest. d. A decrease in retained earnings and no effect on the noncontrolling interest. 2. Par Corp. owns 60\% of Sub Corp.’s outstanding capital stock. On May 1, Par advanced Sub $70,000 in cash, which was still outstanding at December 31. What portion of this advance should be eliminated in the preparation of the December 31 consolidated balance sheet? a. $42,000 b. $70,000 c. $28,000 d. $0 3. Perez, Inc., owns 80\% of Senior, Inc. During the year just ended, Perez sold goods with a 40\% gross profit to Senior. Senior sold all of these goods during the year. In its consolidated financial statements for the year, 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 intraentity sales. b. No adjustment is necessary. c. Net income should be reduced by 80\% of the gross profit on intraentity sales. d. Sales and cost of goods sold should be reduced by 80\% of the intraentity sales. 4. During the current year, Park Corp. recorded $500,000 of sales of inventory to Small Co., its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31, Small held one-fifth of these goods in its inventory. The following information pertains to Park’s and Small’s sales for the year:   Park Small Sales $2,000,000 $1,400,000 Cost of sales 800,000 700,000 Gross profit $1,200,000 $700,000 In its consolidated income statement, what amount should Park report as cost of goods sold? a. $1,500,000 b. $1,060,000 c. $1,360,000 d. $1,000,000 5. King Corp. owns 80\% of Lee Corp.’s common stock. During October, Lee sold merchandise to King for $100,000. At December 31, one-half of the merchandise remained in King’s inventory. For the year, gross profit percentages were 30\% for King and 40\% for Lee. The amount of unrealized intraentity profit in ending inventory at December 31 that should be eliminated in consolidation is a. $15,000 b. $40,000 c. $16,000 d. $20,000 6. Clark Co. had the following transactions with affiliated parties during the year just ended: 1. Sales of $50,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15\% interest in Dean and does not exert significant influence. 2. Purchases of raw materials totaling $240,000 from Kent Corp., a wholly owned subsidiary. Kent’s gross profit on the sale was $48,000. Clark had $60,000 of this inventory remaining on December 31. Before eliminating entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31 consolidated balance sheet for current assets? a. $320,000 b. $314,000 c. $302,000 d. $308,000 7. Don Corp. owns 100\% of Bay Corp.’s common stock. On January 2, Year 3, Don sold to Bay for $40,000 machinery with a carrying amount of $30,000. Bay is depreciating the acquired machinery over a 5-year life by the straight-line method. The net adjustments to compute Year 3 and Year 4 consolidated income before income tax are an increase (decrease) of Year 3- $(8,000); Year 4- $2,000 Year 3- $(8,000); Year 4- $0 Year 3- $(10,000); Year 4- $2,000 Year 3- $(10,000); Year 4- $0 8. Wagner, a holder of a $1 million Palmer, Inc., bond, collected the interest due on March 31, and then sold the bond to Seal, Inc., for $975,000. On that date, Palmer, a 75\% owner of Seal, had a $1,075,000 carrying amount for this bond. What was the effect of Seal’s purchase of Palmer’s bond on the retained earnings and noncontrolling interest amounts reported in Palmer’s March 31 consolidated balance sheet? a. Retained Earnings- $0; Noncontrolling Interest- $25,000 increase b. Retained Earnings- $75,000 increase; Noncontrolling Interest- $25,000 increase c. Retained Earnings- $0; Noncontrolling Interest- $100,000 increase d. Retained Earnings- $100,000 increase; Noncontrolling Interest- $0 9. Port, Inc., owns 100\% of Salem, Inc. On January 1, Port sold Salem delivery equipment at a gain. Port had owned the equipment for 2 years and used a 5-year straight-line depreciation rate with no residual value. Salem is using a 3-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem’s recorded depreciation expense on the equipment for the year will be decreased by a. 100\% of the gain on sale. b. 20\% of the gain on sale. c. 33 1/3\% of the gain on sale. d. 50\% of the gain on sale. 10. On January 1, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly owned subsidiary. Poe paid $1.1 million for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy that Saxe continued. In Poe’s December 31 consolidated balance sheet, this machine should be included in cost and accumulated depreciation as a. Cost- $1,100,000; Accumulated Depreciation- $290,000 b. Cost- $1,100,000; Accumulated Depreciation- $300,000 c. Cost- $850,000; Accumulated Depreciation- $42,500 d. Cost- $900,000; Accumulated Depreciation- $40,000