Gongzhudeshuzi

CHAPTER 6

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS

1. c

Only the expenses related to provision of services are transactions with outside parties. The $3,000,000 revenue reported by Suzlon and the $3,000,000 expense reported by Patni are eliminated.

2. d

Eliminating entries remove the intercompany asset (loan receivable) and liability (loan payable) and the interest revenue and interest expense. There is no effect on timing of income recognition, and therefore no adjustment is made to the investment account or beginning retained earnings.

3. a

Downstream sales only affect equity in net income. The effect is [($540,000 - $480,000) - ($540,000 - $480,000)/1.2] = increase of $10,000.

4. d

Only the adjustment to 2013 depreciation affects equity in net income and noncontrolling interest in net income. It is an upstream sale, so the increase of $2,000,000/10 = $200,000 is shared 80% - 20%.

5. b

From the consolidated company’s perspective, it paid $35,000 for the land and sold it for $85,000. Therefore the consolidated gain is $50,000.

6. a

The intercompany gain, recognized by the subsidiary in 2010, is $400,000. In 2013, the parent sells the land to an outside party for $550,000, reporting a loss of $850,000 (= $1,400,000 - $550,000). The consolidated loss is $450,000 (= $1,000,000 - $550,000). The 2013 eliminating entry adjusts the reported $850,000 loss to $450,000, and reclassifies it from the subsidiary’s beginning retained earnings.

7. a

The consolidation working paper for 2013 is:

| |Parent |Subsidiary |Dr |Cr |Consolidated |

|Inventory |$100,000 |-- | |20,000 (I-2) |$80,000 |

|Sales |450,000 |500,000...