Intercompany Transactions: Summary of Items by Topic

CHAPTER 4
INTERCOMPANY TRANSACTIONS
SUMMARY OF ITEMS BY TOPIC
Conceptual Computational
True- Multiple Multiple Short
False Choice Choice Problems Answer
Basic intercompany 1-5 32, 34-37 436-444,
transaction concepts 453
Basic intercompany plant 6-16 38-39 445-449
asset transactions
Downstream 46-48, 50-52, 292-299
intercompany plant asset 54-56, 58-61,
transactions, elimination 63-66, 68-71
in year of transaction
Downstream 17-18 49, 53, 57, 62, 300-307
intercompany plant asset 67, 72-81
transactions, elimination
in subsequent year
Basic intercompany 19-23 33, 40 450-452,
inventory transactions 454-456
Downstream 82-96 308-319
intercompany inventory
Downstream 24 97-112 320-331
intercompany inventory
in subsequent year
Basic intercompany long- 25-31 41-45 457-460
term debt transactions
Downstream 113-133 332-347
intercompany long-term
debt transactions,
elimination in year of
transaction
Downstream 134-148 348-363
intercompany long-term
debt transactions,
elimination in subsequent
year
Upstream intercompany 149-152, 155- 364-371
plant asset transactions, 158, 161-164,
elimination in year of 167-171, 174-
transaction 178, 181-185
Upstream intercompany 153-154, 159- 372-379
plant asset transactions, 160, 165-166,
elimination in subsequent 172-173, 179-
year 180, 186-199
Upstream intercompany 200-219 380-391
inventory transactions,
elimination in year of
transaction
inventory transactions,
elimination in subsequent
year
long-term debt
long-term debt
in subsequent year
True-False Statements
1. An intercompany transaction occurs when one unit of an entity is involved in a
transaction with another unit of the same entity.
2. An intercompany transaction must involve the parent and a subsidiary.
3. An intercompany transaction flowing from the parent to the subsidiary is called a

downstream transaction.
4. An intercompany transaction flowing from one subsidiary to another subsidiary is called

an upstream transaction.
5. An intercompany transaction flowing from the subsidiary to the parent is called a

realized transaction.
6. When an intercompany plant asset transaction occurs, the historical cost of the asset on
the consolidated balance sheet will be the cost of the asset to the original owner.
7. In the period of an intercompany plant asset transaction, the gain or loss on the sale of
the plant asset will be completely eliminated from the consolidated income statement.
8. In the period of an intercompany plant asset transaction, the accumulated depreciation
account will be completely eliminated.
9. If the intercompany sale of plant assets occurs at the end of the accounting period, there
will not be an adjustment to depreciation expense when the consolidation worksheet
eliminations are prepared.
10. If the intercompany sale of plant assets occurs at the end of the accounting period, there
will not be an adjustment to accumulated depreciation when the consolidation worksheet
eliminations are prepared.
11. The worksheet elimination to a plant asset account resulting from an intercompany
transaction is the same regardless of when the intercompany transaction occurs.
12. When an intercompany plant transaction occurs during the period, there will likely be
two income statement accounts in the worksheet elimination.
13. When there is an intercompany sale of plant assets, the purchaser of the plant assets must
keep the same remaining economic life as the seller.
14. Consolidated depreciation expense on an asset sold internally is based on the original
owner’s cost and estimated life before the intercompany transaction date and the new
owner’s cost and estimated life after the intercompany transaction date.
15. When there is an intercompany sale of plant assets during the period, the depreciation
expense recognized prior to the sale has no impact on the worksheet elimination to
remove the intercompany sale from the consolidated financial statements.
16. The worksheet elimination to the accumulated depreciation account will get smaller
every period until it reaches zero at the date the machine is fully depreciated.
17. The worksheet elimination to the plant asset account in periods subsequent to a
downstream sale of a plant asset will be the same dollar amount as the worksheet
elimination to the plant asset account at the date of the sale.
18. The retained earnings worksheet elimination is created at the dollar amount of the gain or
loss on the sale of plant assets in the preceding period and the worksheet elimination will
remain at the same dollar amount until the asset is sold to an unrelated party or discarded.
19. A worksheet elimination is not required when an intercompany inventory transaction

occurs at cost.
20. If inventory is sold to a related party at an amount different than cost, the cost of goods
sold account must be adjusted in the period of the intercompany transaction and in the
period when the inventory is sold to an unrelated party.
21. The entire intercompany sale of inventory must be eliminated regardless of whether any
of the inventory has been sold to an unrelated party before the end of the accounting
period.
22. The cost of goods sold worksheet elimination resulting from the intercompany sale of
inventory is always the cost of the inventory sold by one party to a related entity,
regardless of whether any of the inventory has been sold to an unrelated party or not.
23. In the period of an intercompany inventory transaction, a maximum of three accounts

will exist in the worksheet elimination.
24. In periods subsequent to the downstream sale of inventory, the adjustment to retained
earnings represents the unrealized profit on the intercompany sale.
25. All types of intercompany debt transactions involve an unrelated party.
26. The purchase of the parent’s debt instrument from an unrelated party by the subsidiary is
viewed by the consolidated entity as an early retirement of debt.
27. On the date of a parent’s acquisition of a subsidiary’s debt from an unrelated party, both
the parent and the subsidiary will record a journal entry pertaining to the parent’s
purchase of the debt.
28. When one party acquires a debt instrument of a related party from an unrelated party, the
consolidated entity views the transaction as an early retirement of debt.
29. The worksheet elimination pertaining to an indirect intercompany debt transaction

eliminates the gain or loss on the early retirement of debt.
30. The recognized Interest Revenue resulting from an intercompany debt transaction is
always completely eliminated from the consolidated income statement.
31. The Investment in Bonds account created as a result of an intercompany debt transaction
is always completely eliminated from the consolidated balance sheet.
True-False Statement Solutions

1. T
2. F, Intercompany transactions can also occur between two subsidiaries.
3. T
4. F, An intercompany transaction flowing from one subsidiary to another subsidiary is
called a lateral transaction.
5. F, An intercompany transaction flowing from the subsidiary to the parent is called an
upstream transaction.
6. T
7. T
8. F, The accumulated depreciation account will be recreated to the amount that would have
existed had the asset not been sold internally
9. T
10. F, The accumulated depreciation account must be reestablished to the amount that existed
before the intercompany transaction occurred
11. T
12. T
13. F, The estimated remaining economic life of plant assets can change when an
intercompany transaction occurs.
14. F, The consolidated depreciation expense before the intercompany transaction date is
based on the original owner’s cost and estimated life and after the intercompany
transaction depreciation expense is based on the original owner’s cost and the new
owner’s estimated remaining life.
15. T
16. F, The worksheet elimination to the accumulated depreciation account will change in
value each period, either getting larger or smaller, until it reaches the dollar amount of
the worksheet elimination to the plant asset account. This occurs when the plant asset is
fully depreciated.
17. T
18. F, The retained earnings worksheet elimination dollar amount is the gain or loss
eliminated at the date of sale reduced by the cumulative difference between the
depreciation expense recognized by the new owner of the plant asset and the depreciation
expense for that plant asset on the consolidated income statement.
19. F, Regardless of the dollar amount of an intercompany inventory transaction, sales and
cost of goods sold are misstated if the transaction is not eliminated.
20. T
21. T
22. F, The complete cost of goods sold internally must be eliminated. However, when the
inventory is sold to an unrelated party, an additional amount of cost of goods sold must
be eliminated because the entity selling to the unrelated party is recognizing cost of
goods sold based on a different cost basis than will be recognized by the consolidated
entity.
23. T
24. T
25. F, Indirect intercompany debt transactions involve an unrelated party but direct
intercompany debt transactions do not.
26. T
27. F, The parent will record the acquisition of an investment but the subsidiary will not
record an entry pertaining to the parent’s investment. From the subsidiary’s perspective,
the debt instrument is still outstanding; there has just been a change of ownership.
28. T
29. F, The loss or gain on early retirement of debt is created, not eliminated, in the worksheet
elimination.
30. T
31. T
Conceptual Multiple Choice Questions

32. Which of the following is not an intercompany transaction?
a. The parent company acquires inventory from the subsidiary
b. The subsidiary purchases a machine from another subsidiary
c. The parent purchases inventory from a supplier
d. The subsidiary purchases the parent’s bond payable from an independent investor
33. The parent acquires inventory from a subsidiary. On whose financial records is this
intercompany transaction recorded?
a. The books of the subsidiary only because the subsidiary made the sale and the
consolidated financial statements are prepared for the parent company
stockholders
b. The books of the parent only because the parent knows the subsidiary’s identity
so the parent knows it is an intercompany transaction
c. Neither the parent nor the subsidiary would record the transaction because it is an
intercompany transaction
d. The parent and the subsidiary both record the transaction and it is eliminated
during the consolidation process
34. The sale of inventory from the parent to the subsidiary is called what type of transaction?
a. Downstream intercompany transaction
b. Upstream intercompany transaction
c. Lateral intercompany transaction
d. Realized intercompany transaction
35. The sale of equipment from the subsidiary to the parent is called what type of
transaction?
36. The purchase of a subsidiary’s bond payable from an independent investor by another
subsidiary is called what type of transaction?
37. When there is an intercompany transaction, how much of any profit or loss created as a
result of the transaction is eliminated during the consolidation process?
a. None of the profit or loss is eliminated
b. All of the profit or loss is eliminated
c. The parent’s ownership interest in the profit or loss is eliminated
d. It is not possible to determine how much of the profit or loss is eliminated
without knowing whether the transaction is upstream or downstream
38. In the period of an intercompany asset transaction, the consolidated balance sheet will
present what amount in the asset account?
a. The purchase price by the new owner
b. The purchase price by the original owner
c. The purchase price by the original owner plus the parent’s ownership percentage
of the gain or loss on the sale recognized at the time of the intercompany
transaction
d. The purchase price by the original owner plus the noncontrolling interests’
percentage of the gain or loss on the sale recognized at the time of the
intercompany transaction
39. What amount of gain or loss from the intercompany sale of plant assets is included in the
consolidated income statement?
a. The entire gain or loss is recognized
b. The parent’s ownership interest in the gain or loss is recognized
c. The seller’s portion of the gain or loss is recognized
d. There is no gain or loss recognized
40. When an intercompany inventory transaction occurs at a price greater than cost, what
account on the purchaser’s financial records is initially affected because of the gross
profit on the sale?
a. Sales
b. Cost of Goods Sold
c. Gross Profit
d. Inventory
41. Sampson Company is having a cash flow problem. Sampson borrows $500,000 from its
parent, Nelson Group. What is this type of transaction called?
a. Lateral debt transaction
b. Indirect intercompany debt transaction
c. Direct intercompany debt transaction
d. Negotiated transfer
42. What is the transaction called when the parent acquires a subsidiary’s debt instrument
from an unrelated party?
a. Direct intercompany debt transaction
b. Indirect intercompany debt transaction
c. Negotiated transfer
d. Lateral debt transaction
43. On the date when a subsidiary acquires some of the parent’s outstanding debt from an
unrelated party, which entity records a journal entry with respect to the long-term debt?
a. Subsidiary
b. Parent
c. Parent and subsidiary
d. Neither party records a journal entry
44. At the date when the parent acquires some of the subsidiary’s outstanding debt from an
unrelated party, how is the debt instrument viewed by the parties?
a. The parent views the debt instrument as an investment
b. The consolidated entity views the transaction as retired
c. The subsidiary views the debt instrument as an outstanding liability
d. All of the above are correct
45. Over time, what will happen to the dollar amount of the discount or premium included in
a worksheet elimination of an indirect intercompany debt transaction?
a. The discount or premium worksheet elimination amount will not change in value
over time
b. The discount or premium worksheet elimination amount will get larger in value
over time
c. The discount or premium worksheet elimination amount will get smaller over
time
d. It is not possible to determine what will happen to the dollar amount of the
discount or premium worksheet elimination amount
Conceptual Multiple Choice Question Difficulty and Solutions
32. easy c
33. easy d
34. easy a
35. easy b
36. easy c
37. easy b
38. easy b
39. easy d
40. moderate d
41. easy c
42. easy b
43. easy a
44. easy d
45. moderate c
Computational Multiple Choice Questions

46. The parent sells its 80 percent subsidiary equipment for $25,000 on December 31, 2005.
At that date, the equipment has a cost and accumulated depreciation on the parent’s
financial records of $40,000 and $10,000, respectively. What is the worksheet
elimination to the equipment account if consolidated financial statements are prepared on
December 31, 2005?
a. $15,000 credit
b. $15,000 debit
c. $12,000 credit
d. $12,000 debit
elimination to the gain or loss on sale of equipment account if consolidated financial
statements are prepared on December 31, 2005?
a. $5,000 credit
b. $5,000 debit
c. $4,000 credit
d. $4,000 debit
elimination to the accumulated depreciation account if consolidated financial statements
are prepared on December 31, 2005?
a. $8,000 credit
b. $8,000 debit
c. $10,000 credit
d. $10,000 debit
elimination to the retained earnings account if consolidated financial statements are
prepared on December 31, 2006?
a. $5,000 debit
b. $5,000 credit
c. $4,000 debit
d. $4,000 credit
50. The 70 percent subsidiary acquires equipment from its parent on December 31, 2005 for
$160,000. At that date, the equipment has a cost and accumulated depreciation on the
parent’s books of $130,000 and $60,000, respectively. What is the worksheet elimination
to the equipment account if consolidated financial statements are prepared on December
31, 2005?
a. $21,000 credit
b. $21,000 debit
c. $30,000 credit
d. $30,000 debit
to the gain or loss on sale of equipment account if consolidated financial statements are
a. $90,000 credit
b. $90,000 debit
c. $63,000 credit
d. $63,000 debit
to the accumulated depreciation account if consolidated financial statements are prepared
on December 31, 2005?
a. $60,000 credit
b. $60,000 debit
c. $42,000 credit
d. $42,000 debit
to the retained earnings account if consolidated financial statements are prepared on
December 31, 2006?
a. $63,000 credit
b. $63,000 debit
c. $90,000 credit
d. $90,000 debit
54. The parent sells its 60 percent subsidiary a machine for $60,000 on December 31, 2005.
At that date, the machine has a cost and accumulated depreciation on the parent’s
elimination to the machine account if consolidated financial statements are prepared on
December 31, 2005?
a. $20,000 debit
b. $20,000 credit
c. $12,000 debit
d. $12,000 credit
elimination to the gain or loss on sale of machine account if consolidated financial
a. $10,000 credit
b. $10,000 debit
c. $6,000 credit
d. $6,000 debit
elimination to the accumulated depreciation account if consolidated financial statements
a. $18,000 credit
b. $18,000 debit
c. $30,000 credit
d. $30,000 debit
elimination to the retained earnings account if consolidated financial statements are
a. $10,000 debit
b. $10,000 credit
c. $6,000 debit
d. $6,000 credit
58. Aztec, the parent, sells its 90 percent subsidiary, Navajo, equipment for $36,000 on May
1, 2005. At that date, the equipment has a cost and accumulated depreciation on Aztec’s
financial records of $60,000 and $31,200, respectively. The equipment had a remaining
life of four years on Aztec’s books and was assigned a life of six years by Navajo. What
is the worksheet elimination to the equipment account if consolidated financial
a. $21,600 credit
b. $21,600 debit
c. $24,000 credit
d. $24,000 debit
is the worksheet elimination to the gain or loss on sale of equipment account if
consolidated financial statements are prepared on December 31, 2005?
a. $7,200 credit
b. $7,200 debit
c. $6,480 credit
d. $6,480 debit
is the worksheet elimination to the depreciation expense account if consolidated financial
statements are prepared December 31, 2005?
a. $1,200 credit
b. $1,200 debit
c. $800 credit
d. $800 debit
is the worksheet elimination to the accumulated depreciation account if consolidated
financial statements are prepared on December 31, 2005?
a. $30,400 credit
b. $30,400 debit
c. $31,200 credit
d. $31,200 debit
is the worksheet elimination to the retained earnings account if consolidated financial
a. $6,000 debit
b. $6,000 credit
c. $6,400 debit
d. $6,400 credit
63. The 80 percent subsidiary (Scottsdale) acquires a building from its parent (Phoenix) on
October 1, 2005 for $640,000. At that date, the building has a cost and accumulated
depreciation on Phoenix’s books of $500,000 and $350,000, respectively. The building
had a remaining life of six years on Phoenix’s books and was assigned a life of ten years
by Scottsdale. What is the worksheet elimination to the building account if consolidated
a. $140,000 credit
b. $140,000 debit
c. $112,000 credit
d. $112,000 debit
by Scottsdale. What is the worksheet elimination to the gain or loss on sale of building
account if consolidated financial statements are prepared on December 31, 2005?
a. $490,000 credit
b. $490,000 debit
c. $392,000 credit
d. $392,000 debit
by Scottsdale. What is the worksheet elimination to the depreciation expense account if
consolidated financial statements are prepared December 31, 2005?
a. $9,750 credit
b. $9,750 debit
c. $12,250 credit
d. $12,250 debit
by Scottsdale. What is the worksheet elimination to the accumulated depreciation
a. $340,250 debit
b. $340,250 credit
c. $337,750 debit
d. $337,750 credit
by Scottsdale. What is the worksheet elimination to the retained earnings account if
a. $477,750 debit
b. $477,750 credit
c. $441,000 debit
d. $441,000 credit
68. The parent, Farley Corporation, sells its 70 percent subsidiary, GolfWorld, a machine for
$90,000 on April 1, 2005. At that date, the machine has a cost and accumulated
depreciation on Farley’s financial records of $160,000 and $60,000, respectively. The
machine had a remaining life of eight years on Farley’s books and was assigned a life of
ten years by GolfWorld. What is the worksheet elimination to the machine account if
a. $49,000 debit
b. $49,000 credit
c. $70,000 debit
d. $70,000 credit
ten years by GolfWorld. What is the worksheet elimination to the gain or loss on sale of
machine account if consolidated financial statements are prepared on December 31,
2005?
a. $10,000 debit
b. $10,000 credit
c. $7,000 debit
d. $7,000 credit
ten years by GolfWorld. What is the worksheet elimination to the depreciation expense
account if consolidated financial statements are prepared December 31, 2005?
a. $750 debit
b. $750 credit
c. $1,000 debit
d. $1,000 credit
ten years by GolfWorld. What is the worksheet elimination to the accumulated
depreciation account if consolidated financial statements are prepared on December 31,
2005?
a. $59,250 debit
b. $59,250 credit
c. $60,750 debit
d. $60,750 credit
ten years by GolfWorld. What is the worksheet elimination to the retained earnings
a. $9,250 debit
b. $9,250 credit
c. $9,000 debit
d. $9,000 credit
73. Matz Corporation, an 80 percent subsidiary, acquired equipment from Ronald Company,
its parent, on March 1, 2005 for $84,000. On that date, the equipment and accumulated
depreciation on Ronald’s books were $120,000 and $15,000 respectively. The equipment
has a five-year remaining life on Ronald’s books and was assigned a life of seven years
by Matz. What is the worksheet elimination to the equipment account if consolidated
a. $21,000 credit
b. $21,000 debit
c. $36,000 credit
d. $36,000 debit
by Matz. What is the depreciation expense on the 2006 consolidated income statement?
a. $7,000
b. $15,000
c. $12,000
d. $21,000
by Matz. What is the worksheet elimination to the accumulated depreciation account if
a. $20,500
b. $17,500
c. $14,000
d. $16,400
76. Most Corporation sold a machine to its 90 percent subsidiary, Ruggle Company on
October 1, 2005 for $270,000. On that date, the machine and accumulated depreciation
on Most’s books were $430,000 and $136,000, respectively. The machine has a seven-
year remaining life on Most’s books and was assigned a life of ten years by Ruggle.
What is the worksheet elimination to the machine account if consolidated financial
a. $160,000 debit
b. $160,000 credit
c. $24,000 debit
d. $24,000 credit
What is the depreciation expense on the 2006 consolidated income statement?
a. $43,000
b. $29,400
c. $27,000
d. $41,000
What is the worksheet elimination to the accumulated depreciation account if
a. $136,000
b. $133,000
c. $139,000
d. $140,800
79. Piazza Corporation sold a machine to its 70 percent subsidiary, Scott Company on June
1, 2005 for $150,000. On that date, the machine and accumulated depreciation on
Piazza’s books were $320,000 and $140,000, respectively. The machine has an eight-
year remaining life on Piazza’s books and was assigned a life of ten years by Scott. What
is the worksheet elimination to the machine account if consolidated financial statements
a. $50,000 debit
b. $50,000 credit
c. $170,000 debit
d. $170,000 credit
is the depreciation expense on the 2006 consolidated income statement?
a. $3,000
b. $32,000
c. $15,000
d. $18,000
is the worksheet elimination to the accumulated depreciation account if consolidated
a. $135,250
b. $144,750
c. $140,000
d. $98,525
82. Fairchild Corporation sells $20,000 of inventory for $25,000 to its 70 percent subsidiary
(Phillips Company) on December 10, 2005. None of the inventory is sold to unrelated
parties before year-end. What is the amount of the worksheet elimination to sales when
the 2005 consolidated financial statements are prepared?
a. $0
b. $20,000
c. $17,500
d. $25,000
parties before year-end. What is the amount of the worksheet elimination to cost of
goods sold when the 2005 consolidated financial statements are prepared?
a. $14,000
b. $20,000
c. $25,000
d. $17,500
parties before year-end. What is the amount of the worksheet elimination to inventory
when the 2005 consolidated financial statements are prepared?
a. $0
b. $20,000
c. $5,000
d. $14,000
85. Core Corporation sells $56,000 of inventory for $75,000 to its 80 percent subsidiary
(Hale Company) on December 15, 2005. None of the inventory is sold to unrelated
parties before year-end. What is the amount of the worksheet elimination to sales when
a. $0
b. $75,000
c. $60,000
d. $56,000
parties before year-end. What is the amount of the worksheet elimination to cost of
goods sold when the 2005 consolidated financial statements are prepared?
a. $56,000
b. $0
c. $75,000
d. $44,800
parties before year-end. What is the amount of the worksheet elimination to inventory
when the 2005 consolidated financial statements are prepared?
a. $0
b. $56,000
c. $11,200
d. $19,000
88. Goldwater, Incorporated sells $46,000 of inventory for $60,000 to its 70 percent
subsidiary (Atkinson Company) on December 1, 2005. By the end of 2005, Atkinson
sells 40 percent of this inventory to unrelated parties for $31,000. What is the amount of
the worksheet elimination to sales when the 2005 consolidated financial statements are
prepared?
a. $42,000
b. $60,000
c. $81,700
d. $91,000
the worksheet elimination to cost of goods sold when the 2005 consolidated financial
statements are prepared?
a. $51,600
b. $46,000
c. $5,600
d. $40,400
the worksheet elimination to inventory when the 2005 consolidated financial statements
are prepared?
a. $16,000
b. $0
c. $8,400
d. $4,200
91. Faulkner, Incorporated sells $20,000 of inventory for $26,000 to its 60 percent subsidiary
(Cassidy Company) on December 6, 2005. By the end of 2005, Cassody sells 70 percent
of this inventory to unrelated parties for $23,000. What is the amount of the worksheet
elimination to sales when the 2005 consolidated financial statements are prepared?
a. $26,000
b. $38,600
c. $39,800
d. $49,000
elimination to cost of goods sold when the 2005 consolidated financial statements are
prepared?
a. $20,000
b. $38,200
c. $18,200
d. $24,200
elimination to inventory when the 2005 consolidated financial statements are prepared?
a. $0
b. $1,800
c. $6,000
d. $7,800
94. Baird Corporation sells $62,000 of inventory for $70,000 to its 90 percent subsidiary
(Day Company) on December 10, 2005. By the end of 2005, Day sells 40 percent of this
inventory to unrelated parties for $35,000. What is the amount of the worksheet
a. $63,000
b. $70,000
c. $105,000
d. $98,000
prepared?
a. $90,000
b. $55,800
c. $65,200
d. $97,000
a. $4,800
b. $0
c. $3,200
d. $21,000
97. Power Corporation sells $50,000 of inventory for $65,000 to its 80 percent subsidiary
(Bollen Company) on December 29, 2005. None of this inventory was sold to unrelated
parties by the end of 2005. During 2006, 90 percent of this inventory is sold to unrelated
parties for $72,000. What is the amount of the worksheet elimination to retained
earnings when the 2006 consolidated financial statements are prepared?
a. $15,000
b. $12,000
c. $13,500
d. $10,800
parties for $72,000. What is the amount of the worksheet elimination to sales when the
2006 consolidated financial statements are prepared?
a. $72,000
b. $13,500
c. $0
d. $10,800
parties for $72,000. What is the amount of the worksheet elimination to cost of goods
sold when the 2006 consolidated financial statements are prepared?
a. $0
b. $15,000
c. $12,000
d. $13,500
parties for $72,000. What is the amount of the worksheet elimination to inventory when
a. $0
b. $1,500
c. $1,350
d. $1,200
101. Wayne Corporation sells $34,000 of inventory for $46,000 to its 70 percent subsidiary
(Focus Company) on December 22, 2005. None of this inventory was sold to unrelated
parties for $25,000. What is the amount of the worksheet elimination to retained
earnings when the 2006 consolidated financial statements are prepared?
a. $8,400
b. $7,200
c. $12,000
d. $20,400
parties for $25,000. What is the amount of the worksheet elimination to sales when the
2006 consolidated financial statements are prepared?
a. $46,000
b. $25,000
c. $15,000
d. $0
parties for $25,000. What is the amount of the worksheet elimination to cost of goods
sold when the 2006 consolidated financial statements are prepared?
a. $7,200
b. $12,000
c. $0
d. $8,400
parties for $25,000. What is the amount of the worksheet elimination to inventory when
a. $0
b. $4,800
c. $3,600
d. $27,600
105. Jefferson Corporation sells $64,000 of inventory for $80,000 to its 90 percent subsidiary
(Wilson Company) on November 22, 2005. Forty percent of this inventory is sold to
unrelated parties for $38,000 by the end of 2005. During 2006, the remaining 60 percent
is sold to unrelated parties for $55,000. What is the amount of the worksheet elimination
to retained earnings when the 2006 consolidated financial statements are prepared?
a. $16,000
b. $9,600
c. $14,400
d. $8,640
to sales when the 2006 consolidated financial statements are prepared?
a. $80,000
b. $42,000
c. $0
d. $118,000
to cost of goods sold when the 2006 consolidated financial statements are prepared?
a. $9,600
b. $33,000
c. $0
d. $14,400
to inventory when the 2006 consolidated financial statements are prepared?
a. $26,000
b. $6,400
c. $9,600
d. $0
109. Davis Corporation sells $35,000 of inventory for $51,000 to Miller Company, its 90
percent subsidiary, on December 11, 2005. Thirty percent of this inventory is sold to
unrelated parties for $20,000 by the end of 2005. During 2006, another 60 percent of
this inventory is sold to unrelated parties for $37,000. What is the amount of the
worksheet elimination to retained earnings when the 2006 consolidated financial
a. $11,200
b. $16,000
c. $14,400
d. $9,600
worksheet elimination to sales when the 2006 consolidated financial statements are
prepared?
a. $51,000
b. $71,000
c. $0
d. $57,000
worksheet elimination to cost of goods sold when the 2006 consolidated financial
a. $0
b. $16,000
c. $22,200
d. $9,600
worksheet elimination to inventory when the 2006 consolidated financial statements are
prepared?
a. $0
b. $1,600
c. $16,000
d. $9,600
113. Belden Corporation acquires $200,000 of Caldwell’s (parent) outstanding bonds payable
on December 31 for $215,000. At that date, the bonds have a $6,000 unamortized
discount on Caldwell’s financial records. What is the dollar amount of gain or loss that
would be disclosed on the consolidated income statement with regard to this transaction?
a. $15,000
b. $6,000
c. $21,000
d. $4,000
114. Miami Corporation acquires $300,000 of Tampa’s (parent) outstanding bonds payable on
December 31 for $295,000. At that date, the bonds have a $4,000 unamortized premium
on Tampa’s financial records. What is the dollar amount of gain or loss that would be
disclosed on the consolidated income statement with regard to this transaction?
a. $9,000
b. $5,000
c. $4,000
d. $1,000
115. Skaler Corporation acquires $400,000 of Avery’s (parent) outstanding bonds payable on
December 31 for $375,000. At that date, the bonds have an $18,000 unamortized
discount on Avery’s financial records. What is the dollar amount of gain or loss that
a. $25,000
b. $18,000
c. $19,000
d. $7,000
116. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

bonds payable on May 31, 2005 for $160,000. At that date, the bonds have an $8,000
unamortized discount on Regional’s financial records and a remaining life of 80 months.
Discounts and premiums are amortized straight-line. What is the December 31, 2005
worksheet elimination to the gain or loss on early debt retirement account?
a. $18,000 credit
b. $18,000 debit
c. $8,000 credit
d. $8,000 debit

worksheet elimination to the bonds payable account?
a. $150,000
b. $160,000
c. $158,000
d. $142,000

worksheet elimination to the discount on bonds payable account?
a. $7,500
b. $7,300
c. $8,000
d. $8,700

worksheet elimination to the investment in bonds account?
a. $160,000
b. $150,000
c. $158,500
d. $159,125

worksheet elimination to the interest expense account?
a. $11,200
b. $10,500
c. $6,825
d. $7,325

worksheet elimination to the interest revenue account?
a. $5,250
b. $9,625
c. $10,500
d. $7,000
122. Agri Corporation acquires $300,000 of Canner’s (parent) 6 percent outstanding bonds
payable on September 1, 2005 for $282,000. At that date, the bonds have a $15,000
unamortized premium on Canner’s financial records and a remaining life of 60 months.
a. $33,000 credit
b. $33,000 debit
c. $18,000 credit
d. $18,000 debit
a. $282,000
b. $315,000
c. $300,000
d. $315,000
worksheet elimination to the premium on bonds payable account?
a. $15,000
b. $12,000
c. $18,000
d. $14,000
a. $283,200
b. $282,000
c. $285,600
d. $280,800
a. $18,000
b. $5,000
c. $6,000
d. $15,000
a. $18,000
b. $21,600
c. $9,600
d. $7,200
128. Macro Corporation acquires $650,000 of Apex’s (parent) 6 percent outstanding bonds
payable on February 1, 2005 for $627,500. At that date, the bonds have a $6,000
unamortized discount on Apex’s financial records and a remaining life of 75 months.
a. $22,500 credit
b. $22,500 debit
c. $16,500 credit
d. $16,500 debit
a. $644,000
b. $650,000
c. $627,500
d. $656,000
a. $5,120
b. $880
c. $960
d. $5,040
a. $644,880
b. $650,000
c. $630,800
d. $627,500
a. $34,870
b. $35,750
c. $36,630
d. $39,880
a. $35,750
b. $32,450
c. $42,600
d. $39,050
134. Dryer Corporation acquires $250,000 of Ghost’s (parent) 6 percent outstanding bonds
payable on March 1, 2005 for $269,200. At that date, the bonds have a $16,000
unamortized discount on Ghost’s financial records and a remaining life of 64 months.
worksheet elimination to the retained earnings?
a. $29,700 credit
b. $29,700 debit
c. $16,200 credit
d. $16,200 debit
a. $10,500
b. $16,000
c. $13,500
d. $13,000
a. $250,000
b. $266,200
c. $269,200
d. $262,600
a. $15,000
b. $15,500
c. $18,000
d. $14,040
a. $11,400
b. $16,152
c. $10,500
d. $8,900
139. Smiley Corporation acquires $400,000 of Prestige’s (parent) 6 percent outstanding bonds
payable on October 1, 2005 for $380,200. At that date, the bonds have a $15,000
unamortized premium on Prestige’s financial records and a remaining life of 60 months.
worksheet elimination to the retained earnings account?
a. $33,060 debit
b. $33,060 credit
c. $26,100 debit
d. $26,100 credit
worksheet elimination to the premium on bonds payable account?
a. $11,250
b. $15,000
c. $14,250
d. $12,000
a. $380,200
b. $381,190
c. $385,150
d. $384,160
a. $24,000
b. $27,000
c. $24,750
d. $21,000
a. $20,040
b. $24,000
c. $27,960
d. $6,990
144. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

bonds payable on June 1, 2005 for $579,200. At that date, the bonds have a $23,760
unamortized discount on Peterson’s financial records and a remaining life of 72 months.
worksheet elimination to the retained earnings account?
a. $75,790 debit
b. $75,790 credit
c. $92,950 debit
d. $92,950 credit

a. $17,490
b. $23,760
c. $19,800
d. $21,450

a. $600,100
b. $579,200
c. $566,000
d. $558,300

a. $48,960
b. $45,000
c. $28,560
d. $41,040

a. $58,200
b. $31,800
c. $18,550
d. $45,000
149. Driver is a 70 percent subsidiary of Forbes. On December 31, 2005, Driver sells
equipment to Forbes for $80,000. At that date, the equipment has a cost and accumulated
depreciation on Driver’s financial records of $170,000 and $60,000, respectively. Driver
and Forbes have income in 2005 of $290,000 and $640,000, respectively. What is the
worksheet elimination to the equipment account if consolidated financial statements are
a. $63,000 credit
b. $63,000 debit
c. $90,000 credit
d. $90,000 debit
worksheet elimination to the gain or loss on sale of equipment account if consolidated
a. $30,000 credit
b. $30,000 debit
c. $21,000 credit
d. $21,000 debit
worksheet elimination to the accumulated depreciation account if consolidated financial
a. $60,000 credit
b. $60,000 debit
c. $42,000 credit
d. $42,000 debit
income to noncontrolling interest in 2005?
a. $78,000
b. $96,000
c. $87,000
d. $203,000
worksheet elimination to the retained earnings account if consolidated financial
a. $30,000 debit
b. $30,000 credit
c. $21,000 debit
d. $21,000 credit
worksheet elimination to the noncontrolling interest account if consolidated financial
a. $30,000 credit
b. $30,000 debit
c. $9,000 credit
d. $9,000 debit
155. Grambo is an 80 percent subsidiary of Campbell. On December 31, 2005, Grambo sells
equipment to Campbell for $270,000. At that date, the equipment has a cost and
accumulated depreciation on Grambo’s books of $400,000 and $180,000, respectively.
Grambo and Campbell have income in 2005 of $463,000 and $890,000, respectively.
What is the worksheet elimination to the equipment account if consolidated financial
a. $104,000 debit
b. $104,000 credit
c. $130,000 debit
d. $130,000 credit
What is the worksheet elimination to the gain or loss on sale of equipment account if
a. $50,000 debit
b. $50,000 credit
c. $40,000 debit
d. $40,000 credit
a. $144,000 credit
b. $144,000 debit
c. $180,000 credit
d. $180,000 debit
What is the income to noncontrolling interest in 2005?
a. $513,000
b. $102,600
c. $413,000
d. $82,600
What is the worksheet elimination to the retained earnings account if consolidated
a. $40,000 credit
b. $40,000 debit
c. $50,000 credit
d. $50,000 debit
What is the worksheet elimination to the noncontrolling interest account if consolidated
a. $10,000 debit
b. $10,000 credit
c. $50,000 debit
d. $50,000 credit
161. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

sells a machine to Caldwell for $230,000. At that date, the machine has a cost and
accumulated depreciation on Townsend’s financial records of $250,000 and $80,000,
respectively. Townsend and Caldwell have income in 2005 of $517,000 and $736,000,
respectively. What is the worksheet elimination to the machine account if consolidated
a. $20,000 credit
b. $20,000 debit
c. $12,000 credit
d. $12,000 debit

respectively. What is the worksheet elimination to the gain or loss on sale of machine
a. $36,000 credit
b. $36,000 debit
c. $60,000 credit
d. $60,000 debit

respectively. What is the worksheet elimination to the accumulated depreciation account
if consolidated financial statements are prepared on December 31, 2005?
a. $80,000 debit
b. $80,000 credit
c. $48,000 debit
d. $48,000 credit

respectively. What is the income to noncontrolling interest in 2005?
a. $346,200
b. $274,200
c. $182,800
d. $230,800

respectively. What is the worksheet elimination to the retained earnings account if
a. $60,000 debit
b. $60,000 credit
c. $36,000 debit
d. $36,000 credit

respectively. What is the worksheet elimination to the noncontrolling interest account if
a. $24,000 credit
b. $24,000 debit
c. $60,000 credit
d. $60,000 debit
167. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

Ferrante equipment for $72,000. At that date, the equipment has a cost and accumulated
depreciation on Gilbert’s financial records of $96,000 and $36,600, respectively. The
equipment had a remaining life of six years on Gilbert’s books and was assigned a life of
five years by Ferrante. Gilbert and Ferrante have income in 2005 of $243,000 and
$523,000, respectively. What is the worksheet elimination to the equipment account if
a. $21,600 credit
b. $21,600 debit
c. $24,000 credit
d. $24,000 debit

$523,000, respectively. What is the worksheet elimination to the gain or loss on sale of
equipment account if consolidated financial statements are prepared on December 31,
2005?
a. $12,600 debit
b. $12,600 credit
c. $11,340 debit
d. $11,340 credit

$523,000, respectively. What is the worksheet elimination to the depreciation expense
account if consolidated financial statements are prepared December 31, 2005?
a. $840 credit
b. $840 debit
c. $2,520 credit
d. $2,520 debit

$523,000, respectively. What is the worksheet elimination to the accumulated
2005?
a. $35,760 debit
b. $35,760 credit
c. $34,080 debit
d. $34,080 credit

$523,000, respectively. What is the income to noncontrolling interest in 2005?
a. $22,956
b. $25,476
c. $23,124
d. $23,040

$523,000, respectively. What is the worksheet elimination to the retained earnings
a. $10,584 debit
b. $10,584 credit
c. $11,760 debit
d. $11,760 credit

$523,000, respectively. What is the worksheet elimination to the noncontrolling interest
a. $1,176 credit
b. $1,176 debit
c. $1,260 credit
d. $1,260 debit
174. Cooley is an 80 percent subsidiary of Kirby. On March 1, 2005, Cooley sells a building
to Kirby for $360,000. At that date, the building has a cost and accumulated depreciation
on Cooley’s books of $600,000 and $254,400, respectively. The building had a
remaining life of ten years on Cooley’s books and was assigned a life of 12 years by
Kirby. Cooley and Kirby have income in 2005 of $530,000 and $960,000, respectively.
What is the worksheet elimination to the building account if consolidated financial
a. $192,000 debit
b. $192,000 credit
c. $240,000 debit
d. $240,000 credit
What is the worksheet elimination to the gain or loss on sale of building account if
a. $11,600 debit
b. $11,600 credit
c. $14,400 debit
d. $14,400 credit
What is the worksheet elimination to the depreciation expense account if consolidated
financial statements are prepared December 31, 2005?
a. $1,200 debit
b. $1,200 credit
c. $1,000 debit
d. $1,000 credit
a. $253,400 debit
b. $253,400 credit
c. $255,400 debit
d. $255,400 credit
a. $102,290
b. $103,320
c. $109,080
d. $108,680
a. $10,720 debit
b. $10,720 credit
c. $13,400 debit
d. $13,400 credit
a. $3,080 debit
b. $3,080 credit
c. $2,680 debit
d. $2,680 credit
181. Wilcox is a 70 percent subsidiary of Prater. On June 1, 2005, Wilcox sells a machine to
Prater for $384,000. At that date, the machine has a cost and accumulated depreciation
on Wilcox’s financial records of $750,000 and $308,400, respectively. The machine had
a remaining life of eight years on Wilcox’s books and was assigned a life of ten years by
Prater. Wilcox and Prater have income in 2005 of $580,000 and $880,000, respectively.
What is the worksheet elimination to the machine account if consolidated financial
a. $366,000 debit
b. $366,000 credit
c. $256,200 debit
d. $256,200 credit
What is the worksheet elimination to the gain or loss on sale of machine account if
a. $40,320 credit
b. $40,320 debit
c. $57,600 credit
d. $57,600 debit
What is the worksheet elimination to the depreciation expense account if consolidated
financial statements are prepared December 31, 2005?
a. $5,760 credit
b. $5,760 debit
c. $3,360 credit
d. $3,360 debit
a. $311,760 credit
b. $311,760 debit
c. $218,232 credit
d. $218,232 debit
a. $192,288
b. $155,712
c. $157,728
d. $190,272
a. $37,968 debit
b. $37,968 credit
c. $40,320 debit
d. $40,320 credit
a. $16,272 credit
b. $16,272 debit
c. $17,280 debit
d. $17,280 credit
188. Fairfield is an 80 percent subsidiary of Patterson. Patterson acquired equipment from

Fairfield on May 1, 2005 for $63,000. On that date, the equipment and accumulated
depreciation on Fairfield’s books were $95,000 and $19,400, respectively. The
equipment has a five-year remaining life on Fairfield’s books and was assigned a life of
seven years by Patterson. Fairfield and Patterson have income in 2006 of $238,000 and
$530,000, respectively. What is the worksheet elimination to the equipment account if
a. $32,000 credit
b. $32,000 debit
c. $25,600 credit
d. $25,600 debit

$530,000, respectively. What is the depreciation expense on the 2006 consolidated
income statement?
a. $10,800
b. $15,120
c. $12,600
d. $9,000

2006?
a. $22,400
b. $16,400
c. $17,920
d. $13,120

a. $47,600
b. $47,240
c. $47,960
d. $49,760
192. Gibson Corporation is a 90 percent subsidiary of Kemsley Company. Gibson sold a

machine to Kemsley on February 1, 2005 for $120,000. On that date, the machine and
accumulated depreciation on Gibson’s books were $170,000 and $35,600 respectively.
The machine has an eight-year remaining life on Gibson’s books and was assigned a life
of ten years by Kemsley. Gibson and Kemsley have income in 2006 of $192,000 and
$302,000, respectively. What is the worksheet elimination to the machine account if
a. $45,000 credit
b. $45,000 debit
c. $50,000 credit
d. $50,000 debit

$302,000, respectively. The machine has a seven-year remaining life on Gibson’s books
and was assigned a life of ten years by Kemsley. What is the depreciation expense on the
2006 consolidated income statement?
a. $19,200
b. $17,280
c. $13,440
d. $12,096

2006?
a. $32,840
b. $38,360
c. $29,556
d. 34,524

a. $19,056
b. $171,504
c. $172,800
d. $19,200
196. Cook Corporation is a 70 percent subsidiary of Reinstein Company. Cook sold a machine
to Reinstein on June 1, 2005 for $211,200. On that date, the machine and accumulated
depreciation on Cook’s books were $370,000 and $130,000 respectively. The machine
has a five-year remaining life on Cook’s books and was assigned a life of eight years by
Reinstein. Cook and Reinstein have income in 2006 of $254,000 and $550,000,
respectively. What is the worksheet elimination to the machine account if consolidated
a. $111,160 debit
b. $111,160 credit
c. $158,800 debit
d. $158,800 credit
respectively. What is the depreciation expense on the 2006 consolidated income
statement?
a. $21,000
b. $30,000
c. $26,400
d. $18,480
respectively. What is the worksheet elimination to the accumulated depreciation account
if consolidated financial statements are prepared on December 31, 2006?
a. $135,700
b. $133,990
c. $124,300
d. $126,010
a. $175,280
b. $75,120
c. $180,320
d. $77,280
200. Runyan Company is a 70 percent subsidiary of Young Corporation. Runyan sells

$65,000 of inventory for $73,000 to Young on December 10, 2005. None of the
inventory is sold to unrelated parties before year-end. Runyan and Young have income in
2005 of $162,000 and $285,000, respectively. What is the amount of the worksheet
a. $73,000
b. $8,000
c. $0
d. $65,000

prepared?
a. $0
b. $8,000
c. $65,000
d. $73,000

a. $0
b. $3,500
c. $1,500
d. $8,000

2005 of $162,000 and $285,000, respectively. What is the income to noncontrolling
interest in 2005?
a. $48,600
b. $46,200
c. $51,000
d. $43,000
204. Krogstad Company is an 80 percent subsidiary of Carter Corporation. Krogstad sells

$86,000 of inventory for $98,000 to Carter on December 15, 2005. None of the
inventory is sold to unrelated parties before year-end. Krogstad and Carter have income
in 2005 of $274,000 and $640,000. What is the amount of the worksheet elimination to
sales when the 2005 consolidated financial statements are prepared?
a. $0
b. $86,000
c. $98,000
d. $78,400
cost of goods sold when the 2005 consolidated financial statements are prepared?
a. $0
b. $86,000
c. $68,800
d. $78,400

inventory when the 2005 consolidated financial statements are prepared?
a. $12,000
b. $0
c. $9,600
d. $15,000

in 2005 of $274,000 and $640,000. What is the income to noncontrolling interest in
2005?
a. $45,200
b. $57,200
c. $52,400
d. $54,800
208. Cripps Company is a 70 percent subsidiary of Ross Corporation. Cripps sells $52,000 of
inventory for $70,000 to Ross on December 1, 2005. By the end of 2005, Ross sells 60
percent of this inventory to unrelated parties for $46,000. Cripps and Ross have income
in 2005 of $157,000 and $229,000, respectively. What is the amount of the worksheet
a. $0
b. $52,000
c. $70,000
d. $49,000
prepared?
a. $52,000
b. $62,800
c. $41,200
d. $47,200
a. $0
b. $18,000
c. $5,040
d. $7,200
in 2005 of $157,000 and $229,000, respectively. What is the income to noncontrolling
interest in 2005?
a. $47,100
b. $41,700
c. $44,940
d. $50,340
212. Tearney Company is a 60 percent subsidiary of Capone, Incorporated. Tearney sells

$34,000 of inventory for $41,000 to Capone on December 2, 2005. By the end of 2005,
Capone sells 80 percent of this inventory to unrelated parties for $50,000. Tearney and
Capone have income in 2005 of $210,000 and $520,000, respectively. What is the
amount of the worksheet elimination to sales when the 2005 consolidated financial
a. $0
b. $50,000
c. $71,000
d. $41,000

amount of the worksheet elimination to cost of goods sold when the 2005 consolidated
financial statements are prepared?
a. $34,000
b. $39,600
c. $5,600
d. $28,400

amount of the worksheet elimination to inventory when the 2005 consolidated financial
a. $0
b. $7,000
c. $1,400
d. $5,600

a. $83,440
b. $84,000
c. $81,200
d. $86,240
216. Ford Company is a 90 percent subsidiary of Davis Corporation. Ford sells $94,000 of
inventory for $115,000 to Davis on November 27, 2005. By the end of 2005, Davis sells
40 percent of this inventory to unrelated parties for $65,000. Ford and Davis have
income in 2005 of $320,000 and $698,000, respectively. What is the amount of the
prepared?
a. $94,000
b. $141,000
c. $115,000
d. $180,000
a. $140,000
b. $120,000
c. $94,000
d. $102,400
prepared?
a. $0
b. $12,600
c. $21,000
d. $46,000
income in 2005 of $320,000 and $698,000, respectively. What is the income to
noncontrolling interest in 2005?
a. $30,740
b. $32,840
c. $32,000
d. $33,260
220. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

$93,000 of inventory for $125,000 to King on December 23, 2005. None of this
inventory was sold to unrelated parties by the end of 2005. During 2006, 70 percent of
this inventory is sold to unrelated parties for $170,000. Wendell and King have income
elimination to retained earnings when the 2006 consolidated financial statements are
prepared?
a. $32,000
b. $25,600
c. $9,600
d. $7,680

elimination to noncontrolling interest when the 2006 consolidated financial statements
are prepared?
a. $32,000
b. $18,600
c. $6,400
d. $25,000

a. $93,000
b. $125,000
c. $170,000
d. $0
prepared?
a. $22,400
b. $25,600
c. $0
d. $65,100

a. $0
b. $6,400
c. $9,600
d. $27,900

interest in 2006?
a. $63,080
b. $54,120
c. $53,480
d. $58,600
226. Brown Company is a 70 percent subsidiary of Denison Corporation. Brown sells

$28,000 of inventory for $37,000 to Denison on December 27, 2005. None of this
this inventory is sold to unrelated parties for $33,000. Brown and Denison have income
elimination to retained earnings when the 2006 consolidated financial statements are
prepared?
a. $9,000
b. $2,700
c. $5,400
d. $6,300
elimination to noncontrolling interest when the 2006 consolidated financial statements
are prepared?
a. $3,600
b. $2,700
c. $9,000
d. $6,300

a. $0
b. $33,000
c. $8,027
d. $9,000

prepared?
a. $3,000
b. $5,400
c. $2,400
d. $6,300

a. $0
b. $2,000
c. $3,600
d. $1,600

interest in 2006?
a. $53,580
b. $56,820
c. $55,200
d. $71,080
232. Johnson Company is a 90 percent subsidiary of Kline Corporation. Johnson sells

$84,000 of inventory for $98,000 to Kline on November 13, 2005. Sixty percent of this
inventory is sold to unrelated parties for $102,000 by the end of 2005. During 2006, the
remaining 40 percent is sold to unrelated parties for $65,000. Johnson and Kline have
worksheet elimination to retained earnings when the 2006 consolidated financial
a. $8,400
b. $7,560
c. $5,600
d. $5,040

worksheet elimination to noncontrolling interest when the 2006 consolidated financial
a. $1,400
b. $840
c. $560
d. 5,040

prepared?
a. $40,800
b. $5,600
c. $26,000
d. $0

a. $8,400
b. $5,600
c. $0
d. $26,000

prepared?
a. $5,600
b. $26,000
c. $8,400
d. $0

income in 2006 of $372,000 and $928,000, respectively. What is the income to
noncontrolling interest in 2006?
a. $37,200
b. $36,640
c. $37,760
d. $35,800
238. Hartman Company is a 90 percent subsidiary of Tobin Corporation. Hartman sells

$52,000 of inventory for $65,000 to Tobin on December 1, 2005. Twenty percent of this
inventory is sold to unrelated parties for $22,000 by the end of 2005. During 2006,
another 70 percent of this inventory is sold to unrelated parties for $80,000. Hartman
and Tobin have income in 2006 of $312,000 and $539,000, respectively. What is the
amount of the worksheet elimination to retained earnings when the 2006 consolidated
a. $11,700
b. $9,360
c. $14,040
d. $3,510

amount of the worksheet elimination to noncontrolling interest when the 2006
consolidated financial statements are prepared?
a. $1,300
b. $1,560
c. $1,040
d. $910

amount of the worksheet elimination to sales when the 2006 consolidated financial
a. $65,000
b. $56,000
c. $80,000
d. $0

amount of the worksheet elimination to cost of goods sold when the 2006 consolidated
a. $9,100
b. $13,000
c. $11,700
d. $0

amount of the worksheet elimination to inventory when the 2006 consolidated financial
a. $0
b. $3,900
c. $1,300
d. $10,400

a. $30,290
b. $32,110
c. $31,200
d. $30,030
244. Sevin is a 70 percent subsidiary of Klein. Klein acquires $300,000 of Sevin’s

outstanding bonds payable on December 31 for $320,000. At that date, the bonds have a
$4,000 unamortized discount on Sevin’s financial records. Sevin and Klein have income
of $138,000 and $294,000, respectively. What is the dollar amount of gain or loss that
a. $0
b. $24,000
c. $20,000
d. $16,000
245. Sevin is a 70 percent subsidiary of Klein. Klein acquires $300,000 of Sevin’s

$4,000 unamortized discount on Sevin’s financial records. Sevin and Klein have income
of $138,000 and $294,000, respectively. What is the income to noncontrolling interest?
a. $34,200
b. $114,000
c. $79,800
d. $48,600
246. Ratliff is a 90 percent subsidiary of Arnold. Arnold acquires $100,000 of Ratliff

$3,000 unamortized premium on Ratliff’s financial records. Ratliff and Arnold have
income of $129,000 and $293,000, respectively. What is the dollar amount of gain or
loss that would be disclosed on the consolidated income statement with regard to this
transaction?
a. $1,000
b. $4,500
c. $5,000
d. $0
247. Ratliff is a 90 percent subsidiary of Arnold. Arnold acquires $100,000 of Ratliff

$3,000 unamortized premium on Ratliff’s financial records. Ratliff and Arnold have
income of $129,000 and $293,000, respectively. What is the income to noncontrolling
interest?
a. $12,900
b. $12,400
c. $13,000
d. $13,400
248. Trotter is an 80 percent subsidiary of White. White acquires $200,000 of Trotter’s
$3,000 unamortized discount on Trotter’s financial records. Trotter and White have
income of $429,000 and $974,000, respectively. What is the dollar amount of gain or
loss that would be disclosed on the consolidated income statement with regard to this
transaction?
a. $0
b. $10,000
c. $3,200
d. $4,000
249. Trotter is an 80 percent subsidiary of White. White acquires $200,000 of Trotter’s

$3,000 unamortized discount on Trotter’s financial records. Trotter and White have
income of $429,000 and $974,000, respectively. What is the income to noncontrolling
interest?
a. $85,000
b. $85,160
c. $86,600
d. $85,800
250. Kelly Company is a 60 percent subsidiary of Hughes Corporation. Hughes acquires

$250,000 of Kelly’s 6 percent outstanding bonds payable on August 31, 2005 for
$272,500. At that date, the bonds have a $9,000 unamortized discount on Kelly’s
financial records and a remaining life of 75 months. Discounts and premiums are
amortized straight-line. Kelly and Hughes have income in 2005 of $375,000 and
$820,000, respectively. What is the December 31, 2005 worksheet elimination to the
gain or loss on early debt retirement account?
a. $18,900 credit
b. $18,900 debit
c. $31,500 debit
d. $31,500 credit

bonds payable account?
a. $150,000
b. $250,000
c. $100,000
d. $241,000

discount on bonds payable account?
a. $9,000
b. $5,112
c. $8,520
d. $21,300

investment in bonds account?
a. $271,300
b. $273,700
c. $251,200
d. $271,000

interest expense account?
a. $4,520
b. $14,520
c. $15,480
d. $5,480

interest revenue account?
a. $6,200
b. $3,800
c. $13,800
d. $16,200

a. $242,892
b. $138,072
c. $161,928
d. $207,108
257. Lampe Company is a 60 percent subsidiary of Finkler Corporation. Finkler acquires

$450,000 of Lampe’s 8 percent outstanding bonds payable on June 1, 2005 for $436,080.
At that date, the bonds have a $23,040 unamortized premium on Lampe’s financial
records and a remaining life of 96 months. Discounts and premiums are amortized
straight-line. Lampe and Finkler have income in 2005 of $493,000 and $1,930,000,
respectively. What is the December 31, 2005 worksheet elimination to the gain or loss
on early debt retirement account?
a. $36,960 debit
b. $36,960 credit
c. $25,872 debit
d. $25,872 credit

respectively. What is the December 31, 2005 worksheet elimination to the bonds payable
account?
a. $315,000
b. $436,080
c. $473,040
d. $450,000

respectively. What is the December 31, 2005 worksheet elimination to the premium on
a. $21,360
b. $23,040
c. $14,952
d. $16,128

respectively. What is the December 31, 2005 worksheet elimination to the investment in
bonds account?
a. $435,065
b. $437,095
c. $450,000
d. $437,820

respectively. What is the December 31, 2005 worksheet elimination to the interest
expense account?
a. $25,920
b. $19,320
c. $22,080
d. $22,680

revenue account?
a. $25,160
b. $24,000
c. $22,840
d. $22,015

a. $213,600
b. $210,368
c. $210,906
d. $210,752
264. Hall Company is a 70 percent subsidiary of Benjamin Corporation. Benjamin acquires

$600,000 of Hall’s 7 percent outstanding bonds payable on September 1, 2005 for
$583,200. At that date, the bonds have a $9,240 unamortized discount on Hall’s financial
straight-line. Hall and Benjamin have income in 2005 of $392,000 and $529,000,
respectively. What is the December 31, 2005 worksheet elimination to the gain or loss
on early debt retirement account?
a. $5,292 debit
b. $5,292 credit
c. $7,560 debit
d. $7,560 credit

respectively. What is the December 31, 2005 worksheet elimination to the bonds payable
account?
a. $590,760
b. $583,200
c. $600,000
d. $420,000

respectively. What is the December 31, 2005 worksheet elimination to the discount on
a. $6,160
b. $8,800
c. $8,910
d. $6,237

respectively. What is the December 31, 2005 worksheet elimination to the investment in
bonds account?
a. $600,000
b. $583,200
c. $584,200
d. $584,000

expense account?
a. $16,950
b. $18,050
c. $13,560
d. $14,440

revenue account?
a. $14,800
b. $14,000
c. $13,200
d. $18,500

a. $119,976
b. $119,760
c. $115,224
d. $115,440
271. Vogel Company is an 80 percent subsidiary of Maser Corporation. Maser acquires

$200,000 of Vogel’s 6 percent outstanding bonds payable on November 1, 2005 for
$213,860. At that date, the bonds have a $6,600 unamortized discount on Vogel’s
amortized straight-line. Vogel and Maser have income in 2006 of $247,000 and
retained earnings?
a. $19,840 debit
b. $19,840 credit
c. $15,872 debit
d. $15,872 credit

noncontrolling interest?
a. $3,968 debit
b. $3,968 credit
c. $3,782 debit
d. $3,782 credit

discount on bonds payable account?
a. $4,160
b. $5,200
c. $6,400
d. $5,120

a. $210,920
b. $216,800
c. $168,736
d. $173,440

a. $8,640
b. $10,560
c. $10,800
d. $13,200

a. $14,520
b. $9,480
c. $11,616
d. $7,584

a. $50,144
b. $48,656
c. $46,052
d. $44,564
278. Boyd Company is a 70 percent subsidiary of Kissinger Corporation. Kissinger acquires

$300,000 of Boyd’s 7 percent outstanding bonds payable on August 31, 2005 for
$284,880. At that date, the bonds have a $12,960 unamortized premium on Boyd’s
amortized straight-line. Boyd and Kissinger have income in 2006 of $370,000 and
retained earnings account?
a. $26,520 credit
b. $26,520 debit
c. $18,564 credit
d. $18,564 debit

a. $7,956 credit
b. $7,956 debit
c. $8,073 credit
d. $8,073 debit

premium on bonds payable account?
a. $7,056
b. $10,080
c. $12,960
d. $9,072

a. $281,520
b. $284,880
c. $287,400
d. $288,240

a. $18,840
b. $21,000
c. $23,160
d. $20,280

a. $18,480
b. $16,464
c. $21,000
d. $23,520

a. $120,828
b. $118,020
c. $112,404
d. $109,596
285. Gerber Company is an 80 percent subsidiary of Clark Corporation. Clark acquires

$600,000 of Gerber’s 8 percent outstanding bonds payable on November 1, 2005 for
$644,640. At that date, the bonds have a $30,960 unamortized discount on Gerber’s
financial records and a remaining life of 72 months. Gerber and Clark have income in
2006 of $520,000 and $928,000, respectively. Discounts and premiums are amortized
straight-line. What is the December 31, 2006 worksheet elimination to the retained
earnings account?
a. $73,500 credit
b. $73,500 debit
c. $58,800 credit
d. $58,800 debit
286 Gerber Company is an 80 percent subsidiary of Clark Corporation. Clark acquires

straight-line. What is the December 31, 2006 worksheet elimination to the
a. $14,700 credit
b. $14,700 debit
c. $19,862 credit
d. $19,862 debit

straight-line. What is the December 31, 2006 worksheet elimination to the discount on
a. $19,952
b. $24,940
c. $30,960
d. $24,510

straight-line. What is the December 31, 2006 worksheet elimination to the investment in
bonds account?
a. $635,960
b. $643,400
c. $637,200
d. $652,080

straight-line. What is the December 31, 2006 worksheet elimination to the interest
expense account?
a. $42,528
b. $53,160
c. $48,000
d. $42,840

straight-line. What is the December 31, 2006 worksheet elimination to the interest
revenue account?
a. $44,352
b. $55,440
c. $40,560
d. $32,448

straight-line. What is the income to noncontrolling interest in 2006?
a. $91,400
b. $101,480
c. $86,360
d. $106,520
Computational Multiple Choice Question Difficulty and Solutions

46. easy b
$40,000 - $25,000 = $15,000 debit
47. moderate a
$25,000 - ($40,000 - $10,000) = $5,000 loss (credit)
48. easy c
$10,000 credit, entire accumulated depreciation is reestablished
49. moderate b
$25,000 - ($40,000 - $10,000) = $5,000 loss (credit)
50. easy c
$160,000 - $130,000 = $30,000 credit
51. moderate b
$160,000 - ($130,000 - $60,000) = $90,000 gain (debit)
52. easy a
53. moderate d
$160,000 - ($130,000 - $60,000) = $90,000 gain (debit)
54. easy a
$80,000 - $60,000 = $20,000 debit
55. moderate b
$60,000 - ($80,000 - $30,000) = $10,000 gain (debit)
56. easy c
57. moderate a
$60,000 - ($80,000 - $30,000) = $10,000 gain (debit)
58. easy d
$60,000 - $36,000 = $24,000 debit
59. moderate b
$36,000 - ($60,000 - $31,200) = $7,200 gain (debit)
60. difficult c
($36,000/6)(8/12) - [($60,000 - $31,200)/6](8/12) = $800 credit
61. difficult a
$31,200 - {($36,000/6)(8/12) - [($60,000 - $31,200)/6](8/12)} = $30,400 credit
62. difficult c
$36,000 - ($60,000 - $31,200) = $7,200 gain (debit)
($36,000/6)(8/12) - [($60,000 - $31,200)/6](8/12) = $800 credit
63. easy a
$640,000 - $500,000 = $140,000 credit
64. moderate b
$640,000 - ($500,000 - $350,000) = $490,000 gain (debit)
65. difficult c
($640,000/10)(3/12) - [($500,000 - $350,000)/10](3/12) = $12,250 credit
66. difficult d
$350,000 - {($640,000/10)(3/12) - [($500,000 - $350,000)/10](3/12)} = $337,750 credit
67. difficult a
$640,000 - ($500,000 - $350,000) = $490,000 gain (debit)
($640,000/10)(3/12) - [($500,000 - $350,000)/10](3/12) = $12,250 credit
68. easy c
$160,000 - $90,000 = $70,000 debit
69. moderate b
$90,000 - ($160,000 - $60,000) = $10,000 loss (credit)
70. difficult a
($90,000/10)(9/12) - [($160,000 - $60,000)/10](9/12) = $750 debit
71. difficult d
$60,000 + ($90,000/10)(9/12) - [($160,000 - $60,000)/10](9/12) = $60,750 credit
72. difficult b
$90,000 - ($160,000 - $60,000) = $10,000 loss (credit)
($90,000/10)(9/12) - [($160,000 - $60,000)/10](9/12) = $750 debit
73. easy d
$120,000 - $84,000 = $36,000 debit
74. moderate b
($120,000 - $15,000)/7 = $15,000
75. difficult a
$15,000 + {[($120,000 - $15,000)/7](22/12) - ($84,000/7)(22/12)
76. easy a
$430,000 - $270,000 = $160,000 debit
77. moderate b
($430,000 - $136,000)/10 = $29,400
78. difficult c
$136,000 + {[($430,000 - $136,000)/10](15/12) - ($270,000/10)(15/12)
79. easy c
$320,000 - $150,000 = $170,000 debit
80. moderate d
($320,000 - $140,000)/10 = $18,000
81. difficult b
$140,000 + {[($320,000 - $140,000)/10](19/12) - ($150,000/10)(19/12)
82. easy d
83. easy b
84. easy c
$25,000 - $20,000 = $5,000
85. easy b
86. easy a
87. easy d
$75,000 - $56,000 = $19,000
88. easy b
89. moderate a
$46,000 + ($60,000 - $46,000).4
90. moderate c
($60,000 - $46,000) .6
91. easy a
92. moderate d
$20,000 + ($26,000 - $20,000).7
93. moderate b
($26,000 - $20,000) .3
94. easy b
95. moderate c
$62,000 + ($70,000 - $62,000).4
96. moderate a
($70,000 - $62,000) .6
97. easy a
$65,000 - $50,000
98. easy c
99. moderate d
($65,000 - $50,000) .9
100. moderate b
($65,000 - $50,000) .1
101. easy c
$46,000 - $34,000
102. easy d
103. moderate a
($46,000 - $34,000) .6
104. moderate b
($46,000 - $34,000) .4
105. moderate b
($80,000 - $64,000) - ($80,000 - $64,000) .4
106. easy c
107. moderate a
($80,000 - $64,000) .6
108. easy d
109. moderate a
($51,000 - $35,000) - ($51,000 - $35,000) .3
110. easy c
111. moderate d
($51,000 - $35,000) .6
112. moderate b
($51,000 - $35,000) - ($51,000 - $35,000) (.30 + .60)
113. moderate c
$215,000 - $194,000 = $21,000 loss
114. moderate a
$295,000 - $304,000 = $9,000 gain
115. moderate d
$375,000 - $382,000 = $7,000 gain
116. moderate b
$160,000 - $148,000 = $18,000 loss
117. easy a
The face value of the bonds payable is eliminated
118. moderate b
$8,000 - ($8,000/80)7 = $7,300
119. moderate d
$160,000 - [($160,000 - $150,000)/80]7 = $159,125
120. difficult c
($150,000 x .07)(7/12) + ($8,000/80)7 = $6,825
121. difficult a
($150,000 x .07)(7/12) - [($160,000 - $150,000)/80]7 = $5,250
122. moderate a
$282,000 - $315,000 = $33,000 gain
123. easy c
124. moderate d
$15,000 - ($15,000/60)4 = $14,000
125. moderate a
$282,000 + [($300,000 - $282,000)/60]4 = $283,200
126. difficult b
($300,000 x .06)(4/12) - ($15,000/60)4 = $5,000
127. difficult d
($300,000 x .06)(4/12) + [($300,000 - $282,000)/60]4 = $7,200
128. moderate c
$644,000 - $627,500 = $16,500 gain
129. easy b
130. moderate a
$6,000 - ($6,000/75)11 = $5,120
131. moderate c
$627,500 + [($650,000 - $627,500)/75]11 = $630,800
132. difficult c
($650,000 x .06)(11/12) + ($6,000/75)11 = $36,630
133. difficult d
($650,000 x .06)(11/12) + [($650,000 - $627,500)/75]11 = $39,050
134. difficult b
($269,200 - $234,000)(64-10)/64 = $29,700 debit
135. moderate a
$16,000 x (64-10-12)/64 = $10,500
136. moderate d
$269,200 - [($269,200 - $250,000)/64](10 + 12) = $262,600
137. moderate c
($250,000 x .06) + ($16,000/64)12 = $18,000
138. moderate a
($250,000 x .06) - [($269,200 - $250,000)/64]12 = $11,400
139. difficult b
($415,000 - $380,200)(60-3)/60 = $33,060 credit
140. moderate a
$15,000 x [(60-3-12)/60] = $11,250
141. moderate c
$380,200 + [($400,000 - $380,200)/60](3 + 12) = $385,150
142. moderate d
($400,000 x .06) - ($15,000/60)12 = $21,000
143. moderate c
($400,000 x .06) + [($400,000 - $380,200)/60]12 = 27,960
144. difficult c
($579,200 - $476,240)(72-7)/72 = $92,950 debit
145. moderate a
$23,760 x (72-7-12)/72 = $17,490
146. moderate d
$579,200 - [($579,200 - $500,000)/72](7 + 12) = $558,300
147. moderate a
($500,000 x .09) + ($23,760/72)12 = $48,960
148. moderate b
($500,000 x .09) - [($579,200 - $500,000)/72]12 = $31,800
149. easy d
$170,000 - $80,000 = $90,000 debit
150. moderate a
$80,000 - ($170,000 - $60,000) = $30,000 loss (credit)
151. easy a
152. moderate b
$80,000 - ($170,000 - $60,000) = $30,000
($290,000 + $30,000) .3 = $96,000
153. moderate d
[$80,000 - ($170,000 - $60,000)].7 = $21,000 credit
154. moderate c
[$80,000 - ($170,000 - $60,000)].3 = $9,000 credit
155. easy c
$400,000 - $270,000 = $130,000 debit
156. moderate a
$270,000 - ($400,000 - $180,000) = $50,000 gain (debit)
157. easy c
158. moderate d
$270,000 - ($400,000 - $180,000) = $50,000
($463,000 - $50,000) .2 = $82,600
159. moderate b
[$270,000 - ($400,000 - $180,000)].8 = $40,000 debit
160. moderate a
[$270,000 - ($400,000 - $180,000)].2 = $10,000 debit
161. easy b
$250,000 - $230,000 = $20,000 debit
162. moderate d
$230,000 - ($250,000 - $80,000) = $60,000 gain (debit)
163. easy b
164. moderate c
$230,000 - ($250,000 - $80,000) = $60,000
($517,000 - $60,000) .4 = $182,800
165. moderate c
[$230,000 - ($250,000 - $80,000)].6 = $36,000 debit
166. moderate b
[$230,000 - ($250,000 - $80,000)].4 = $24,000 debit
167. easy d
$96,000 - $72,000 = $24,000 debit
168. moderate a
$72,000 - ($96,000 - $36,600) = $12,600 gain (debit)
169. difficult a
($72,000/5)(4/12) - [($96,000 - $36,600)/5](4/12) = $840 credit
170. difficult b
$36,600 - {($72,000/5)(4/12) - [($96,000 - $36,600)/5](4/12)} = $35,760 credit
171. difficult c
($72,000/5)(4/12) - [($96,000 - $36,600)/5](4/12) = $840
{$243,000 - [$72,000 - ($96,000 - $36,600)] + $840} .1 = $23,124
172. difficult a
$72,000 - ($96,000 - $36,600) = $12,600 gain (debit)
($72,000/5)(4/12) - [($96,000 - $36,600)/5](4/12) = $840 (credit)
($12,600 - $840) .9 = $10,584 debit
173. difficult b
$72,000 - ($96,000 - $36,600) = $12,600 gain (debit)
($72,000/5)(4/12) - [($96,000 - $36,600)/5](4/12) = $840 (credit)
($12,600 - $840) .1 = $1,176 debit
174. easy d
$600,000 - $360,000 = $240,000 credit
175. moderate c
$360,000 - ($600,000 - $254,400) = $14,400 gain (debit)
176. difficult d
($360,000/12)(10/12) - [($600,000 - $254,400)/12](10/12) = $1,000 credit
177. difficult b
$254,400 - {($360,000/12)(10/12) - [($600,000 - $254,400)/12](10/12)} = $253,400
credit
178. difficult b
($360,000/12)(10/12) - [($600,000 - $254,400)/12](10/12) = $1,000
{$530,000 - [$360,000 - ($600,000 - $254,400)] + $1,000} .2 = $103,320
179. difficult a
$360,000 - ($600,000 - $254,400) = $14,400 gain (debit)
($360,000/12)(10/12) - [($600,000 - $254,400)/12](10/12) = $1,000 credit
($14,400 - $1,000) .8 = $10,720 debit
180. difficult c
$360,000 - ($600,000 - $254,400) = $14,400 gain (debit)
($360,000/12)(10/12) - [($600,000 - $254,400)/12](10/12) = $1,000 credit
($14,400 - $1,000) .2 = $2,680 debit
181. easy a
$750,000 - $384,000 = $366,000 debit
182. moderate c
$384,000 - ($750,000 - $308,400) = $57,600 loss (credit)
183. difficult d
($384,000/10)(7/12) - [($750,000 - $308,400)/10](7/12) = $3,360 debit
184. difficult a
$308,400 + ($384,000/10)(7/12) - [($750,000 - $308,400)/10](7/12) = $311,760 credit
185. difficult d
$384,000 - ($750,000 - $308,400) = $57,600
($384,000/10)(7/12) - [($750,000 - $308,400)/10](7/12) = $3,360
($580,000 + $57,600 - $3,360) .3 = $190,272
186. difficult b
$384,000 - ($750,000 - $308,400) = $57,600 loss (credit)
($384,000/10)(7/12) - [($750,000 - $308,400)/10](7/12) = $3,360 debit
($57,600 -$3,360) .7 = $37,968 credit
187. difficult a
$384,000 - ($750,000 - $308,400) = $57,600 loss (credit)
($384,000/10)(7/12) - [($750,000 - $308,400)/10](7/12) = $3,360 debit
($57,600 -$3,360) .3 = $16,272 credit
188. easy b
$95,000 - $63,000 = $32,000 debit
189. moderate a
($95,000 - $19,400)/7 = $10,800
190. difficult a
$19,400 + {[($95,000 - $19,400)/84](20) - ($63,000/84)(20) = $22,400
191. difficult b
[($95,000 - $19,400)/7] - ($63,000/7) = $1,800
($238,000 - $1,800) .2 = $47,240
192. easy d
$170,000 - $120,000 = $50,000 debit
193. moderate c
($170,000 - $35,600)/10 = $13,440
194. difficult b
$35,600 + {[($170,000 - $35,600)/120](23) - ($120,000/120)(23)}
195. moderate a
[($170,000 - $35,600)/10] - ($120,000/10) = $1,440
($192,000 - $1,440) .1 = $19,056
196. easy c
$370,000 - $211,200 = $158,800 debit
197. moderate b
($370,000 - $130,000)/8 = $30,000
198. difficult a
$130,000 + {[($370,000 - $130,000)/96](19) - ($211,200/96)(19)}
199. difficult b
[($370,000 - $130,000)/8] - ($211,200/8) = $3,600
($254,000 - $3,600) .3 = $75,120
200. easy a
201. easy c
202. easy d
$73,000 - $65,000 = $8,000
203. moderate b
[$162,000 - ($73,000 - $65,000)] .3 = $46,200
204. easy c
205. easy b
206. easy a
$98,000 - $86,000 = $12,000
207. moderate c
[$274,000 - ($98,000 - $86,000)] .2 = $46,200
208. easy c
209. moderate b
$52,000 + ($70,000 - $52,000).6
210. moderate d
($70,000 - $52,000) .4
211. moderate c
[$157,000 - ($70,000 - $52,000) + ($70,000 - $52,000).6] .3 = $44,940
212. easy d
213. moderate b
$34,000 + ($41,000 - $34,000).8
214. moderate c
($41,000 - $34,000) .2
215. moderate a
[$210,000 - ($41,000 - $34,000) + ($41,000 - $34,000) .8].4 = $83,440
216. easy c
217. moderate d
$94,000 + ($115,000 - $94,000).4
218. moderate b
($115,000 - $94,000) .6
219. moderate a
[$320,000 - ($115,000 - $94,000) + ($115,000 - $94,000) .4] .1 = $30,740
220. moderate b
($125,000 - $93,000) .8 = $25,600
221. moderate c
($125,000 - $93,000) .2 = $6,400
222. easy d
223. moderate a
($125,000 - $93,000) .7
224. moderate c
($125,000 - $93,000) .3
225. moderate a
[$293,000 + ($125,000 - $93,000) .7] .2 = $63,080
226. moderate d
($37,000 - $28,000) .7 = $6,300
227. moderate b
($37,000 - $28,000) .3 = $2,700
228. easy a
229. moderate b
($37,000 - $28,000) .6
230. moderate c
($37,000 - $28,000) .4
231. moderate b
[$184,000 + ($37,000 - $28,000) .6] .3 = $56,820
232. difficult d
[($98,000 - $84,000) - ($98,000 - $84,000) .6] .9 = $5,040
233. difficult c
[($98,000 - $84,000) - ($98,000 - $84,000) .6] .1 = $560
234. easy d
235. moderate b
($98,000 - $84,000) .4
236. easy a
237. moderate c
[$372,000 + ($98,000 - $84,000) .4] .1 = $37,760
238. moderate b
[($65,000 - $52,000) - ($65,000 - $52,000) .2] .9 = $9,360
239. moderate c
[($65,000 - $52,000) - ($65,000 - $52,000) .2] .1 = $1,040
240. easy d
241. moderate a
($65,000 - $52,000) .7
242. moderate c
($65,000 - $52,000) - ($65,000 - $52,050) (.20 + .70)
243. moderate b
[$312,000 + ($65,000 - $52,000) .7] .1 = $32,110
244. moderate b
$320,000 - $296,000 = $24,000 loss
245. moderate a
[$138,000 - ($320,000 - $296,000)] .3
246. moderate c
$98,000 - $103,000 = $5,000 gain
247. moderate d
[$129,000 + ($103,000 - $98,000)] .1 = $13,400
248. moderate d
$193,000 - $197,000 = $4,000 gain
249. moderate c
[$429,000 + ($197,000 - $193,000)] .2 = $86,600
250. moderate c
$272,500 - $241,000 = $31,500 loss
251. easy b
252. moderate c
$9,000 - ($9,000/75)4 = $8,520
253. moderate a
$272,500 - [($272,500 - $250,000)/75]4 = $271,300
254. difficult d
($250,000 x .06)(4/12) + ($9,000/75)4 = $5,480
255. difficult b
($250,000 x .06)(4/12) - [($272,500 - $250,000)/75]4 = $3,800
256. difficult b
$272,500 - $241,000 = $31,500 loss
($250,000 x .06)(4/12) + ($9,000/75)4 = $5,480 interest expense
($250,000 x .06)(4/12) - [($272,500 - $250,000)/75]4 = $3,800 interest revenue
($375,000 - $31,500 + $5,480 - $3,800) .4 = $138,072
257. moderate b
$473,040 - $436,080 = $36,960 gain
258. easy d
259. moderate a
$23,040 - ($23,040/96)7 = $21,360
260. moderate b
$436,080 + [($450,000 - $436,080)/96]7 = $437,095
261. difficult b
($450,000 x .08)(7/12) - ($23,040/96)7 = $19,320
262. difficult d
($450,000 x .08)(7/12) + [($450,000 - $436,080)/96]7 = $22,015
263. difficult c
$473,040 - $436,080 = $36,960 gain
($450,000 x .08)(7/12) - ($23,040/96)7 = $19,320 interest expense
($450,000 x .08)(7/12) + [($450,000 - $436,080)/96]7 = $22,015 interest revenue
($493,000 + $36,960 + $19,320 - $22,015) .4 = $210,906
264. moderate d
($600,000 - $9,240) - $583,200 = $7,560 gain
265. easy c
266. moderate b
$9,240 - ($9,240/84)4 = $8,800
267. moderate d
$583,200 + [($600,000 - $583,200)/84]4 = $584,000
268. difficult d
($600,000 x .07)(4/12) + ($9,240/84)4 = $14,440
269. difficult a
($600,000 x .07)(4/12) + [($600,000 - $583,200)/84]4 = $14,800
270. difficult b
($600,000 - $9,240) - $583,200 = $7,560 gain
($600,000 x .07)(4/12) + ($9,240/84)4 = $14,440 interest expense
($600,000 x .07)(4/12) + [($600,000 - $583,200)/84]4 = $14,800 interest revenue
($392,000 + $7,560 + $14,440 - $14,800) .3 = $119,760
271. difficult c
[($213,860 - $193,400)(66-2)/66] .8 = $15,872 debit
272. difficult a
[($213,860 - $193,400)(66-2)/66] .2 = $3,968 debit
273. moderate b
$6,600 x (66-2-12)/66 = $5,200
274. moderate a
$213,860 - [($213,860 - $200,000)/66](2 + 12) = $210,920
275. moderate d
($200,000 x .06) + (6,600/66)12 = $13,200
276. moderate b
($200,000 x .06) - [($213,860 - $200,000)/66]12 = $9,480
277. difficult a
($200,000 x .06) + (6,600/66)12 = $13,200 interest expense
($200,000 x .06) - [($213,860 - $200,000)/66]12 = $9,480 interest revenue
($247,000 - $9,480 + $13,200) .2 = $50,144
278. difficult c
[($312,960 - $284,880)(72-4)/72] .7 = $18,564 credit
279. difficult a
[($312,960 - $284,880)(72-4)/72] .3 = $7,956 credit
280. moderate b
$12,960 x [(72-4-12)/72] = $10,080
281. moderate d
$284,880 + [($300,000 - $284,880)/72](4 + 12) = $288,240
282. moderate a
($300,000 x .07) - ($12,960/72)12 = $18,840
283. moderate d
($300,000 x .07) + [($300,000 - $284,880)/72]12 = $23,520
284. difficult d
($300,000 x .07) - ($12,960/72)12 = $18,840 interest expense
($300,000 x .07) + [($300,000 - $284,880)/72]12 = $23,520 interest revenue
($370,000 + $18,840 - $23,520) .3 = $109,596
285. difficult d
{[$644,640 - ($600,000 - $30,960)][(72-2)/72]} .8 = $58,800 debit
286 difficult b
{[$644,640 - ($600,000 - $30,960)][(72-2)/72]} .2 = $14,700 debit
287. moderate b
$30,960 x (72-2-12)/72 = $24,940
288. moderate a
$644,640 - [($644,640 - $600,000)/72](2 + 12) = $635,960
289. moderate b
($600,000 x .08) + ($30,960/72)12 = $53,160
290. moderate c
($600,000 x .08) - [($644,640 - $600,000)/72]12 = $40,560
291. difficult d
($600,000 x .08) + ($30,960/72)12 = $53,160 interest expense
($600,000 x .08) - [($644,640 - $600,000)/72]12 = $40,560 interest revenue
($520,000 - $40,560 + $53,160) .2 = $106,520
Problems
292. (10 Points) easy
Patton Corporation sells a machine to its 70 percent subsidiary, Lisko Enterprises for
$180,000 December 31, 2005. At that date, the machine and accumulated depreciation
accounts on Patton’s financial records are $300,000 and $90,000, respectively. The
machine has a remaining life of six years for Patton and is assigned a life of ten years
when acquired by Lisko.
Required:
a. Record the worksheet elimination for the intercompany transaction assuming that
the consolidation occurs on December 31, 2005.
b. What is the income to noncontrolling interest in 2005 if Lisko has reported net
income of $170,000.
Answer:
Part a.
Machine ($300,000 - $180,000) 120,000
Loss on Sale of Machine [$180,000 - ($300,000 - 30,000
$90,000)]
Accumulated Depreciation 90,000
Part b.
Income to Noncontrolling Interest = $170,000 x .3 = $51,000

Janson Corporation sells equipment to its 90 percent subsidiary, Miami Enterprises for
$300,000 on December 31, 2005. At that date, the equipment and accumulated
depreciation accounts on Janson’s financial records are $550,000 and $200,000,
respectively. The equipment has a remaining life of five years for Janson and is assigned
a life of six years when acquired by Miami.
Required:
b. What is the income to noncontrolling interest in 2005 if Miami has reported net
income of $69,000.
Answer:
Part a.
Machine ($550,000 - $300,000) 250,000
Loss on Sale of Equipment [$300,000 - ($550,000 - 50,000
$200,000)]
Part b.

Hamilton Corporation sells a machine to its 80 percent subsidiary, Gregory Enterprises
for $40,000 on December 31, 2005. At that date, the machine and accumulated
depreciation accounts on Hamilton’s financial records are $60,000 and $35,000,
respectively. The machine has a remaining life of five years for Hamilton and is assigned
a life of four years when acquired by Gregory.
Required:
b. What is the income to noncontrolling interest in 2005 if Gregory has reported net
income of $328,000?
Answer:
Part a.
Machine ($60,000 - $40,000) 20,000
Gain on Sale of Machine [$40,000 - ($60,000 - $35,000)] 15,000
Part b.

Chong Corporation sells a building to its 70 percent subsidiary, James Enterprises for
$540,000 on December 31, 2005. At that date, the building and accumulated
depreciation accounts on Chong’s financial records are $480,000 and $90,000,
respectively. The building has a remaining life of seven years for Chong and is assigned
a life of nine years when acquired by James.
Required:
b. What is the income to noncontrolling interest in 2005 if James has reported net
income of $273,000?
Answer:
Part a.
Gain on Sale of Building [$540,000 - ($480,000 - 150,000
$90,000)]
Building ($540,000 - $480,000) 60,000
Part b.
296. (15 Points) moderate

Jensen Corporation sells a machine to its 80 percent subsidiary, Dukes Enterprises for
$120,000 on March 1, 2005. At that date, the machine and accumulated depreciation
accounts on Jensen’s financial records are $260,000 and $80,000, respectively. The
machine has a remaining life of six years for Jensen and is assigned a life of ten years
when acquired by Dukes.
Required:
b. What is the income to noncontrolling interest in 2005 if Dukes has reported net
income of $184,000?
Answer:
Part a.
Machine ($260,000 - $120,000) 140,000
Depreciation Expense [($120,000/120) 10] – 5,000
[($260,000 - $80,000)/120] 10
$80,000)]
Accumulated Depreciation ($80,000 + $5,000) 85,000
Part b.

Flexor Corporation sells equipment to its 70 percent subsidiary, Tubing Enterprises for
$210,000 on May 1, 2005. At that date, the equipment and accumulated depreciation
accounts on Flexor’s financial records are $680,000 and $282,500, respectively. The
equipment has a remaining life of seven years for Flexor and is assigned a life of five
years when acquired by Tubing.
Required:
b. What is the income to noncontrolling interest in 2005 if Tubing has reported net
income of $327,000?
Answer:
Part a.
Machine ($680,000 - $210,000) 470,000
Depreciation Expense ($210,000/5)(8/12) - [($680,000 - 25,000
$282,500)/5](8/12)
$282,500)]
Part b.

Burnaby Corporation sells a machine to its 90 percent subsidiary, Flagstone Enterprises
for $24,000 on October 1, 2005. At that date, the machine and accumulated depreciation
accounts on Burnaby’s financial records are $65,000 and $45,000, respectively. The
machine has a remaining life of five years for Burnaby and is assigned a life of four years
when acquired by Flagstone.
Required:
b. What is the income to noncontrolling interest in 2005 if Flagstone has reported
net income of $126,000?
Answer:
Part a.
Machine ($65,000 - $24,000) 41,000
Depreciation Expense ($24,000/4)(3/12) - 250
[($65,000 - $45,000)/4](3/12)
Accumulated Depreciation ($45,000 - $250) 44,750
Part b.
Chip Corporation sells a building to its 60 percent subsidiary, Dale Enterprises for
$356,400 on February 1, 2005. At that date, the building and accumulated depreciation
accounts on Chip’s financial records are $500,000 and $197,600, respectively. The
building has a remaining life of seven years for Chip and is assigned a life of nine years
when acquired by Dale.
Required:
b. What is the income to noncontrolling interest in 2005 if Dale has reported net
income of $483,000?
Answer:
Part a.
Building ($500,000 - $356,400) 143,600
$197,600)]
Depreciation Expense ($356,400/9)(11/12) - 5,500
[($500,000 - $197,600)/9](11/12)
Accumulated Depreciation ($197,600 - $5,500) 192,100
Part b.

Garvey Company sells a machine to its 80 percent subsidiary, Marks Enterprises for
$80,000 on December 31, 2005. At that date, the machine and accumulated depreciation
accounts on Garvey’s financial records are $180,000 and $60,000, respectively. The
machine has a remaining life of six years for Garvey and is assigned a life of ten years
when acquired by Marks.
Required:
b. What is the income to noncontrolling interest in 2006 if Marks has reported net
income of $193,000?
Answer:
Part a.
Machine ($180,000 - $80,000) 100,000
Depreciation Expense ($80,000/10) - [($180,000 - 4,000
$60,000)]/10
Retained Earnings [$80,000 - ($180,000 - $60,000)] 40,000
Part b.
Roller Corporation sells equipment to its 90 percent subsidiary, Bearing Enterprises for
$160,000 on December 31, 2005. At that date, the equipment and accumulated
depreciation accounts on Roller’s financial records are $250,000 and $50,000,
respectively. The equipment has a remaining life of five years for Roller and is assigned
a life of eight years when acquired by Bearing.
Required:
b. What is the income to noncontrolling interest in 2006 if Bearing has reported net
income of $285,000?
Answer:
Part a.
Machine ($250,000 - $160,000) 90,000
Depreciation Expense ($160,000/8) - [$250,000 - 5,000
$50,000)/8]
Part b.

Langly Corporation sells a machine to its 60 percent subsidiary, Pentagon Enterprises for
$250,000 on December 31, 2005. At that date, the machine and accumulated
depreciation accounts on Langly’s financial records are $350,000 and $140,000,
respectively. The machine has a remaining life of seven years for Langly and is assigned
a life of five years when acquired by Pentagon.
Required:
b. What is the income to noncontrolling interest in 2006 if Pentagon has reported net
income of $320,000?
Answer:
Part a.
Machine ($350,000 - $250,000) 100,000
$140,000)/5]
Accumulated Depreciation ($140,000 - 8,000) 132,000
Part b.
Cesar Company sells a building to its 80 percent subsidiary, Brutus Enterprises for
$660,000 on December 31, 2005. At that date, the building and accumulated
depreciation accounts on Cesar’s financial records are $720,000 and $180,000,
respectively. The building has a remaining life of eight years for Cesar and is assigned a
life of ten years when acquired by Brutus.
Required:
b. What is the income to noncontrolling interest in 2006 if Brutus has reported net
income of $215,000?
Answer:
Part a.
Building ($720,000 - $660,000) 60,000
$180,000)/10]
Part b.
304. (20 Points) difficult

Kenned Company sells a machine to its 70 percent subsidiary, Eyeware Enterprises for
$90,000 on June 1, 2005. At that date, the machine and accumulated depreciation
accounts on Kenned’s financial records are $210,000 and $75,000, respectively. The
machine has a remaining life of six years for Kenned and is assigned a life of ten years
when acquired by Eyeware.
Required:
b. What is the income to noncontrolling interest in 2006 if Eyeware has reported net
income of $135,000?
Answer:
Part a.
Machine ($210,000 - $90,000) 120,000
$75,000)/10]
Retained Earnings [$90,000 - ($210,000 - $75,000)] - 42,375
($90,000/10) (7/12) - [($210,000 - $75,000)/10] (7/12)}
Accumulated Depreciation $75,000 + {($90,000/10) 82,125
(7/12) - [($210,000 - $75,000)/10] (7/12)} + $4,500
Part b.

Bear Corporation sells equipment to its 90 percent subsidiary, Tiger Enterprises for
$160,000 on October 1, 2005. At that date, the equipment and accumulated depreciation
accounts on Bear’s financial records are $300,000 and $120,000, respectively. The
equipment has a remaining life of six years for Bear and is assigned a life of eight years
when acquired by Tiger.
Required:
b. What is the income to noncontrolling interest in 2006 if Tiger has reported net
income of $361,000?
Answer:
Part a.
Machine ($300,000 - $160,000) 140,000
Depreciation Expense [($300,000 - $120,000)/8] - 2,500
($160,000/8)
Retained Earnings [$160,000 - ($300,000 - 19,375
$120,000)] - {($160,000/8)(3/12) - [($300,000 -
$120,000)/8](3/12)}
Accumulated Depreciation ($120,000 + {($160,000/8) 123,125
(3/12) - [($300,000 - $120,000)8](3/12)} + $2,500)
Part b.

Pearson Company sells a machine to its 80 percent subsidiary, Shreck Enterprises for
$244,800 on May 1, 2005. At that date, the machine and accumulated depreciation
accounts on Pearson’s financial records are $320,000 and $122,000, respectively. The
machine has a remaining life of eight years for Pearson and is assigned a life of six years
when acquired by Shreck.
Required:
b. What is the income to noncontrolling interest in 2006 if Shreck has reported net
income of $186,000?
Answer:
Part a.
Machine ($320,000 - $244,800) 75,200
{[($244,800/6)(8/12)] - [($320,000 - $122,000)/6](8/12)}
$122,000)/6]
Accumulated Depreciation $122,000 - {[($244,800/6) 109,000
(8/12)] - [($320,000 - $122,000)/6](8/12)} - $7,800
Part b.

O’Keefe Corporation sells a building to its 90 percent subsidiary, Collins Enterprises for
$480,000 on September 1, 2005. At that date, the building and accumulated depreciation
accounts on O’Keefe’s financial records are $600,000 and $204,000, respectively. The
building has a remaining life of fifteen years for O’Keefe and is assigned a life of twenty
years when acquired by Collins.
Required:
b. What is the income to noncontrolling interest in 2006 if Collins has reported net
income of $217,000?
Answer:
Part a.
Building ($600,000 - $480,000) 120,000
{[($480,000/20)(4/12)] - [($600,000 - 204,000)/20](4/12)}
$204,600)/20]
Accumulated Depreciation $204,000 - {[($480,000/20) 198,400
(4/12)] - [($600,000 - $204,000)/20](4/12)} - $4,200
Part b.

King Corporation owns 100 percent of Joker Company’s stock. On December 29, 2005,
King sells inventory with a cost of $30,000 to Joker for $35,000. Assuming none of this
inventory is sold to an unrelated party by the end of 2005, prepare the intercompany
transaction worksheet elimination for the preparation of the 2005 consolidated financial
statements.
Answer:
Sales 35,000
Cost of Goods Sold 30,000
Inventory 5,000

Large Corporation sells inventory costing $48,000 to its 100 percent subsidiary (Tiny
Company) on December 21, 2005 for $55,000. None of this inventory is sold to an
unrelated party by the end of 2005. Prepare the intercompany transaction worksheet
elimination for the preparation of the 2005 consolidated financial statements.
Answer:
Sales 55,000
Inventory 7,000

Wasp Corporation owns 80 percent of Stinger Company’s stock. On December 30, 2005,
Wasp sells inventory with a cost of $63,000 to Stinger for $75,000.
Required:
a. Assuming none of this inventory is sold to an unrelated party by the end of 2005,
prepare the intercompany transaction worksheet elimination for the preparation of
the 2005 consolidated financial statements.
b. What is the income to noncontrolling interest in 2005 if Stinger has reported net
income of $263,000?
Answer:
Part a.
Sales 75,000
Inventory 12,000
Part b.

Pristine Corporation sells inventory costing $15,000 to its 70 percent subsidiary (Slim
unrelated party by the end of 2005.
Required:
a. Prepare the intercompany transaction worksheet elimination for the preparation of
b. What is the income to noncontrolling interest in 2005 if Slim has reported net
income of $152,000?
Answer:
Part a.
Sales 18,000
Inventory 3,000
Part b.

Agri Corporation owns 100 percent of Commodity Company’s stock. On November 29,
2005, Agri sells inventory with a cost of $70,000 to Commodity for $92,000. Assume
that 60 percent of this inventory is sold to an unrelated party by the end of 2005 for
$72,000. Prepare the intercompany transaction worksheet elimination for the preparation
of the 2005 consolidated financial statements.
Answer:
Sales 92,000
Cost of Goods Sold [$70,000 + ($92,000 - 83,200
$70,000) .6]
Inventory ($92,000 - $70,000) .4 8,800

Marine Corporation sells inventory costing $50,000 to its 100 percent subsidiary (Terry
Company) on October 28, 2005 for $65,000. Terry sells 30 percent of this inventory to
an unrelated party by the end of 2005 for $24,000. Prepare the intercompany transaction
worksheet elimination for the preparation of the 2005 consolidated financial statements.
Answer:
Sales 65,000
$50,000) .3]
Inventory ($65,000 - $50,000) .7 10,500

Wyoming Corporation owns 90 percent of Colorado Company’s stock. On December 1,
2005, Wyoming sells inventory with a cost of $62,000 to Colorado for $80,000. Assume
$60,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Colorado has reported net
income of $326,000?
Answer:
Part a.
Sales 80,000
$62,000) .7]
Inventory ($80,000 - $62,000) .3 5,400
Part b.
Elastic Corporation sells inventory costing $31,000 to its 80 percent subsidiary (Ribbon
Company) on September 15, 2005 for $40,000. Ribbon sells 90 percent of this inventory
to an unrelated party by the end of 2005 for $46,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Ribbon has reported net
income of $203,000?
Answer:
Part a.
Sales 40,000
Cost of Goods Sold [$31,000 - ($40,000 - 39,100
$31,000) .9]
Inventory ($40,000 - $31,000) .1 900
Part b.

Whaler Corporation owns 100 percent of Scrod Company’s stock. On August 29, 2005,
Whaler sells inventory with a cost of $35,000 to Scrod for $47,000. Assume that this
entire inventory is sold to an unrelated party by the end of 2005 for $65,000. Prepare the
intercompany transaction worksheet elimination for the preparation of the 2005
consolidated financial statements.
Answer:
Sales 47,000

Jacobs Corporation sells inventory costing $56,000 to its 100 percent subsidiary (Son
Company) on September 28, 2005 for $65,000. Son sells this entire inventory to an
unrelated party by the end of 2005 for $90,000. Prepare the intercompany transaction
Answer:
Sales 65,000

Casper Corporation owns 70 percent of Larimar Company’s stock. On November 10,
2005, Casper sells inventory with a cost of $27,000 to Larimar for $31,000. Assume that
this entire inventory is sold to an unrelated party by the end of 2005 for $40,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Larimar has reported net
income of $168,000?
Answer:
Part a.
Sales 31,000
Part b.

Whisper Corporation sells inventory costing $62,000 to its 90 percent subsidiary (Shout
Company) on October 22, 2005 for $80,000. Shout sells this entire inventory to an
unrelated party by the end of 2005 for $96,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Shout has reported net
income of $389,000.
Answer:
Part a.
Sales 80,000
Part b.

Paul Corporation owns 100 percent of Sally Company’s stock. On December 29, 2005,
Paul sells inventory with a cost of $15,000 to Sally for $18,000. Assuming none of this
inventory is sold to an unrelated party by the end of 2005 and 40 percent is sold to an
unrelated party in 2006 for $9,500, prepare the intercompany transaction worksheet
Answer:
Retained Earnings ($18,000 - $15,000) 3,000
Cost of Goods Sold ($18,000 - $15,000) .4 1,200
Inventory ($18,000 - $15,000) .6 1,800

Car Corporation sells inventory costing $70,000 to its 100 percent subsidiary (Van
unrelated party by the end of 2005. However, 80 percent is sold to unrelated parties in
2006 for $79,000. Prepare the intercompany transaction worksheet elimination for the
preparation of the 2006 consolidated financial statements.
Answer:
Inventory ($88,000 - $70,000) .2 3,600

Atlanta Corporation owns 80 percent of Montgomery Company’s stock. On December
28, 2005, Atlanta sells inventory with a cost of $59,000 to Montgomery for $73,000.
Assume that none of this inventory is sold to an unrelated party by the end of 2005 and
70 percent is sold to unrelated parties in 2006.
Required:
b. What is the income to noncontrolling interest in 2006 if Montgomery has reported
Answer:
Part a.
Inventory ($73,000 - $59,000) .3 4,200
Part b.

Quantum Corporation sells inventory costing $63,000 to its 80 percent subsidiary (Time
unrelated party by the end of 2005. However, 90 percent is sold to unrelated parties in
2006 for $82,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Time has reported net
income of $436,000?
Answer:
Part a.
Inventory ($78,000 - $63,000) .1 1,500
Part b.

Able Corporation owns 100 percent of Door Company’s stock. On October 29, 2005,
Able sells inventory with a cost of $37,000 to Door for $52,000. Assume that 60 percent
of this inventory is sold to unrelated parties by the end of 2005 for $42,000 and the
remainder is sold to unrelated parties in 2006 for $27,000. Prepare the relevant
Answer:
Retained Earnings ($52,000 - $37,000) - ($52,000 - 6,000
$37,000) .6

Claire Corporation sells inventory costing $60,000 to its 100 percent subsidiary (Sled
Company) on October 15, 2005 for $70,000. Sled sells 70 percent of this inventory to
unrelated parties by the end of 2005 for $58,000 and the remainder is sold to unrelated
parties in 2006 for $29,000. Prepare the relevant worksheet elimination for the
Answer:
$60,000) .7

Portland Corporation owns 60 percent of Seattle Company’s stock. On December 12,
2005, Portland sells inventory with a cost of $24,000 to Seattle for $35,000. Assume that
20 percent of this inventory is sold to unrelated parties by the end of 2005 for $9,500 and
the remainder is sold to unrelated parties in 2006 for $31,000.
Required:
a. Prepare the relevant worksheet elimination for the preparation of the 2006
b. What is the income to noncontrolling interest in 2006 if Seattle has reported net
income of $225,000?
Answer:
Part a.
$24,000) .2
Part b.
Dallas Corporation sells inventory costing $76,000 to its 90 percent subsidiary (Houston
Company) on September 1, 2005 for $93,000. Houston sells 70 percent of this inventory
to unrelated parties by the end of 2005 for $81,000 and the remainder is sold to unrelated
parties by the end of 2006 for $35,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Houston has reported net
income of $256,000?
Answer:
Part a.
$76,000) .7
Part b.

Philadelphia Corporation owns 100 percent of Sacramento Company’s stock. On
November 29, 2005, Philadelphia sells inventory with a cost of $82,000 to Sacramento
for $112,000. Assume that 10 percent of this inventory is sold to unrelated parties by the
end of 2005 for $17,000 and that an additional 70 percent is sold to unrelated parties in
2006 for $94,000. Prepare the relevant worksheet elimination for the preparation of the
2006 consolidated financial statements.
Answer:
$82,000) .1
Inventory ($112,000 - $82,000) .2 6,000

Chicago Corporation sells inventory costing $70,000 to its 100 percent subsidiary
(Milwaukee Company) on November 15, 2005 for $92,000. Milwaukee sells 20 percent
of this inventory to unrelated parties by the end of 2005 for $38,000 and an additional 70
percent is sold to unrelated parties in 2006 for $71,000. Prepare the relevant worksheet
Answer:
$70,000) .2
Inventory ($92,000 - $70,000) .1 2,200
Nationwide Corporation owns 70 percent of Regional Company’s stock. On December
12, 2005, Nationwide sells inventory with a cost of $34,000 to Regional for $41,000.
Assume that 20 percent of this inventory is sold to unrelated parties by the end of 2005
for $10,000 and an additional 70 percent is sold to unrelated parties in 2006 for $33,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Regional has reported net
income of $218,000?
Answer:
Part a.
$34,000) .2
Inventory ($41,000 - $34,000) .1 700
Part b.

Denver Corporation sells inventory costing $54,000 to its 80 percent subsidiary (Laramie
Company) on December 1, 2005 for $72,000. Laramie sells 10 percent of this inventory
to unrelated parties by the end of 2005 for $8,000 and an additional 70 percent is sold to
unrelated parties by the end of 2006 for $56,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Laramie has reported net
income of $324,000?
Answer:
Part a.
$54,000) .1
Inventory ($72,000 - $54,000) .2 3,600
Part b.

Gordon Enterprises purchases $80,000 of Meyer’s (parent) outstanding bonds payable for
$77,000 on December 31, 2005. At that date, the bonds have a $5,000 unamortized
discount on Meyer’s financial records and a remaining life of five years. Prepare the
worksheet elimination for December 31, 2005.
Answer:
Bonds Payable 80,000
Loss on Early Debt Retirement 2,000
Discount on Bonds Payable 5,000
Investment in Bonds 77,000

Euske Enterprises purchases $150,000 of Frank’s (parent) outstanding bonds payable for
discount on Frank’s financial records and a remaining life of four years. Prepare the
Answer:
Gain on Early Retirement of Debt 2,000

Tucker Corporation purchases $200,000 of Wade’s (parent) outstanding bonds payable
for $210,000 on December 31, 2005. At that date, the bonds have a $5,000 unamortized
discount on Wade’s financial records and a remaining life of ten years. Prepare the
Answer:

Giroux Corporation purchases $90,000 of Holt’s (parent) outstanding bonds payable for
discount on Holt’s financial records and a remaining life of four years. Prepare the
Answer:

Johnson Corporation purchases $140,000 of Pearson’s (parent) outstanding bonds
payable for $138,000 on December 31, 2005. At that date, the bonds have a $3,000
unamortized premium on Pearson’s financial records and a remaining life of five years.
Prepare the worksheet elimination for December 31, 2005.
Answer:
Premium on Bonds Payable 3,000
Gain on Early Debt Retirement 5,000

Mitchell Corporation purchases $250,000 of Osborne’s (parent) outstanding bonds
unamortized premium on Osborne’s financial records and a remaining life of ten years.
Answer:

Smith Corporation purchases $150,000 of Rude’s (parent) outstanding bonds payable for
premium on Rude’s financial records and a remaining life of ten years. Prepare the
Answer:

Lehman Corporation purchases $200,000 of Cappel’s (parent) outstanding bonds payable
for $210,000 on December 31, 2005. At that date, the bonds have a $6,000 unamortized
premium on Cappel’s financial records and a remaining life of six years. Prepare the
Answer:

LaPlante Enterprises purchases $40,000 of Chen’s (parent) 6 percent outstanding bonds
payable for $37,480 on May 1, 2005. At that date, the bonds have a $3,360 unamortized
discount on Chen’s financial records and a remaining life of seven years. Discounts and
premiums are amortized straight-line. Prepare the worksheet elimination for December
31, 2005.
Answer:
Loss on Early Debt Retirement [$37,480 - ($40,000 - 840
$3,360)]
Interest Revenue ($40,000 x .06) (8/12) + ($40,000 - 1,840
$37,480) (8/84)
Interest Expense ($40,000 x .06) (8/12) + 1,920
($3,360 x 8/84)
Discount on Bonds Payable ($3,360 x 76/84) 3,040
Investment in Bonds [$37,480 + ($40,000 - $37,480) (8/84)] 37,720

Gray Enterprises purchases $150,000 of Teeter’s (parent) 4 percent outstanding bonds
payable for $132,720 on November 1, 2005. At that date, the bonds have a $12,000
unamortized discount on Teeter’s financial records and a remaining life of 8 years.
Discounts and premiums are amortized straight-line. Prepare the worksheet elimination
for December 31, 2005.
Answer:
Interest Revenue ($150,000 x .04)(2/12) + ($150,000 - 1,360
$132,720) (2/96)
Interest Expense ($150,000 x .04)(2/12) + 1,250
($12,000 x 2/96)
Gain on Early Debt Retirement ($150,000 - 5,280
$12,000) - $132,720
Investment in Bonds [$132,720 + ($150,000 - 133,080
$132,720) (2/96)]

Kamen Corporation purchases $50,000 of Otte’s (parent) 6 percent outstanding bonds
payable for $52,880 on May 31, 2005. At that date, the bonds have a $2,160
unamortized discount on Otte’s financial records and a remaining life of six years.
Answer:
Loss on Early Debt Retirement [$52,880 - ($50,000 - 5,040
$2,160)]
Interest Revenue [($50,000 x .06)(7/12) - ($52,880 - 1,470
$50,000) (7/72)]
($2,160/72)7
Discount on Bonds Payable ($2,160/72)65 1,950
Investment in Bonds {$52,880 - [($52,880 - 52,600
$50,000)/72]7}

Miller Corporation purchases $100,000 of Prensky’s (parent) 9 percent outstanding bonds
unamortized discount on Prensky’s financial records and a remaining life of six years.
Answer:
$1,800)]
Interest Revenue ($100,000 x .09)(7/12) - ($102,160 - 5,040
$100,000) (7/72)
$1,800 x 7/72
Discount on Bonds Payable $1,800 x 65/72 1,625
Investment in Bonds [$102,160 - ($102,160 - 101,950
$100,000) 7/72]

Bryan Corporation purchases $300,000 of Melton’s (parent) 6 percent outstanding bonds
payable for $275,040 on October 31, 2005. At that date, the bonds have a $17,280
unamortized premium on Melton’s financial records and a remaining life of eight years.
Answer:
Premium on Bonds Payable ($17,280 x 94/96) 16,920
Interest Revenue [($300,000 x .06) (2/12) + [($300,000 - 3,520
$275,040) 2/96)]
Interest Expense [($300,000 x .06) (2/12) - 2,640
($17,280 x 2/96)]
Gain on Early Debt Retirement [$275,040 - 42,240
($300,000 + $17,280)]
Investment in Bonds {$275,040 + [($300,000 - 275,560
$275,040) 2/96)]}

Hays Corporation purchases $150,000 of Mapp’s (parent) 7 percent outstanding bonds
payable for $145,500 on September 30, 2005. At that date, the bonds have a $6,000
unamortized premium on Mapp’s financial records and a remaining life of five years.
Answer:
Interest Revenue ($150,000 x .07 x 3/12) + ($150,000 - 2,850
$145,500) (3/60)
($6,000 x 3/60)]
($150,000 + $6,000)]
$145,500) 3/60}

Jones Corporation purchases $200,000 of Mauldin’s (parent) 9 percent outstanding bonds
payable for $205,760 on March 1, 2005. At that date, the bonds have a $7,200
unamortized premium on Mauldin’s financial records and a remaining life of eight years.
Answer:
Interest Revenue ($200,000 x .09 x 10/12) - ($205,760 - 14,400
$200,000) (10/96)
($7,200 x 10/96)]
($200,000 + $7,200)]
$200,000) 10/96]}

Wright Enterprises purchases $200,000 of Berman’s (parent) 6 percent outstanding bonds
unamortized premium on Berman’s financial records and a remaining life of ten years.
Answer:
Loss on Early Debt Retirement [$224,000 - ($200,000 + 4,800
$19,200)]
Interest Revenue ($200,000 x .06 x 8/12) - ($224,000 - 6,400
$200,000) (8/120)
($19,200 x 8/120)]
$200,000) 8/120]}

Brown Enterprises (80 percent subsidiary) purchases $100,000 of Hanwell’s (parent)
outstanding 9 percent bonds payable for $96,160 on December 31, 2005. At that date,
the bonds have a $5,280 unamortized discount on Hanwell’s financial records and a
remaining life of eight years.
Required:
a. Prepare the worksheet elimination for December 31, 2006.
b. What is the income to noncontrolling interest in 2006 if Brown has reported net
income of $68,000?
Answer:
Part a.
Interest Revenue [$100,000 x .09 + ($100,000 - 9,480
$96,160/8)]
Interest Expense [$100,000 x .09 + ($5,280/8)] 9,660
$96,160/8)]
Part b.

Farmer Corporation (70 percent subsidiary) purchases $250,000 of Dock’s (parent)
the bonds have a $6,400 unamortized discount on Dock’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Farmer has reported net
income of $116,000?
Answer:
Part a.
$242,000/8)]
Retained Earnings ($250,000 - $6,400) - $242,000 1,600
Discount on Bonds Payable [$6,400 x 7/8)] 5,600
Interest Expense ($250,000 x .08 + $6,400/8) 20,800
$242,000/8)]
Part b.
Braun Enterprises (60 percent subsidiary) purchases $300,000 of Wier’s (parent)
the bonds have an $8,600 unamortized discount on Wier’s financial records and a
remaining life of four years.
Required:
b. What is the income to noncontrolling interest in 2006 if Braun has reported net
income of $54,000?
Answer:
Part a.
Interest Revenue [$300,000 x .07 - ($313,000 - 17,750
$300,000/4)]
Retained Earnings $313,000 - ($300,000 - $8,600) 21,600
$300,000/4)]
Part b.

Jamal Corporation (80 percent subsidiary) purchases $200,000 of Krause’s (parent)
the bonds have a $9,200 unamortized discount on Krause’s financial records and a
remaining life of five years.
Required:
b. What is the income to noncontrolling interest in 2006 if Jamal has reported net
income of $136,000?
Answer:
Part a.
$200,000/5)]
Retained Earnings $213,000 - ($200,000 - $9,200) 22,200
Investment in Bonds [$213,000 - ($213,000 - $200,000/5)] 210,400
Part b.

Wells Enterprises (90 percent subsidiary) purchases $80,000 of Drexel’s (parent)
the bonds have a $2,500 unamortized premium on Drexel’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Wells has reported net
income of $216,000?
Answer:
Part a.
Interest Revenue [$80,000 x .06 + ($80,000 - $77,000/5)] 5,400
Retained Earnings ($80,000 + $2,500) - $77,000 5,500
Interest Expense [$80,000 x .06 - ($2,500/5)] 4,300
Investment in Bonds [$77,000 + ($80,000 – 77,600
$77,000/5)]
Part b.

Chester Corporation (70 percent subsidiary) purchases $300,000 of Denison’s (parent)
the bonds have a $12,000 unamortized premium on Denison’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Chester has reported net
income of $152,000?
Answer:
Part a.
Premium on Bonds Payable [$12,000 x 7/8)] 10,500
$284,000/8)]
Retained Earnings ($300,000 + $12,000) - $284,000
28,000
Interest Expense ($300,000 x .05 - $12,000/8) 13,500
Investment in Bonds [$284,000 + ($300,000 – 286,000
$284,000/8)]
Part b.

Zeff Enterprises (70 percent subsidiary) purchases $100,000 of Roy’s (parent)
the bonds have a $12,000 unamortized premium on Roy’s financial records and a
remaining life of three years.
Required:
b. What is the income to noncontrolling interest in 2006 if Zeff has reported net
income of $263,000?
Answer:
Part a.
Retained Earnings $118,000 - ($100,000 + $12,000) 6,000
Interest Revenue [$100,000 x .08 - ($118,000 – 2,000
$110,000/3)]
Investment in Bonds [$118,000 - ($118,000 – 112,000
$100,000/3)]
Part b.

Chase Corporation (90 percent subsidiary) purchases $350,000 of Lawson’s (parent)
the bonds have a $46,000 unamortized premium on Lawson’s financial records and a
remaining life of 10 years.
Required:
b. What is the income to noncontrolling interest in 2006 if Chase has reported net
income of $188,000?
Answer:
Part a.
$350,000/10)]
Retained Earnings ($350,000 + $46,000) - $383,000
13,000
Investment in Bonds [$383,000 - ($383,000 - $350,000/10)] 379,700
Part b.

Shaw Enterprises (70 percent subsidiary) purchases $150,000 of Cunningham’s (parent)
outstanding 6 percent bonds payable for $146,040 on June 1, 2005. At that date, the
bonds have a $5,760 unamortized discount on Cunningham’s financial records and a
remaining life of six years.
Required:
b. What is the income to noncontrolling interest in 2006 if Shaw has reported net
income of $268,000?
Answer:
Part a.
Interest Revenue [($150,000 x .06) + ($150,000 - 9,660
$146,040/6)]
Retained Earnings {[$146,040 - ($150,000 - $5,760)] - 1,625
($1,800 x 7/72)}
$146,040) (19/72)]
Part b.

Rigoli Corporation (90 percent subsidiary) purchases $400,000 of Whitaker’s (parent)
outstanding 6 percent bonds payable for $376,000 on September 30, 2005. At that date,
the bonds have a $15,000 unamortized discount on Whitaker’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Rigoli has reported net
income of $629,000?
Answer:
Part a.
$376,000/10)]
Retained Earnings {[$376,000 - ($400,000 - 8,775
$15,000)] + ($9,000 x 3/120)}
$376,000) (15/120)]
Part b.

Krull Enterprises (70 percent subsidiary) purchases $100,000 of Austin’s (parent)
outstanding 9 percent bonds payable for $103,600 on March 1, 2005. At that date, the
bonds have a $2,520 unamortized discount on Austin’s financial records and a remaining
life of five years.
Required:
b. What is the income to noncontrolling interest in 2006 if Krull has reported net
income of $219,000?
Answer:
Part a.
$100,000/5)]
($6,120 x 10/60)
$100,000) (22/60)]
Part b.

Reed Corporation (60 percent subsidiary) purchases $200,000 of Carlin’s (parent)
outstanding 6 percent bonds payable for $215,360 on August 31, 2005. At that date, the
bonds have a $12,480 unamortized discount on Carlin’s financial records and a remaining
life of eight years.
Required:
b. What is the income to noncontrolling interest in 2006 if Reed has reported net
income of $538,000?
Answer:
Part a.
$200,000/8)]
Retained Earnings {$215,360 - ($200,000 - $12,480) - 26,680
($27,840 x 4/96)}
$200,000) (16/96)]
Part b.

Vance Enterprises (80 percent subsidiary) purchases $360,000 of Moore’s (parent)
outstanding 5 percent bonds payable for $342,720 on July 31, 2005. At that date, the
bonds have a $5,760 unamortized premium on Moore’s financial records and a remaining
life of 12 years.
Required:
b. What is the income to noncontrolling interest in 2006 if Vance has reported net
income of $374,000?
Answer:
Part a.
$342,720/12]
Retained Earnings [$342,720 - ($360,000 + 22,240
$5,760)] + ($23,040 x 5/144)
$342,720) (17/144)]
Part b.

Crain Corporation (80 percent subsidiary) purchases $255,000 of Braun’s (parent)
outstanding 8 percent bonds payable for $244,200 on February 1, 2005. At that date, the
bonds have a $16,560 unamortized premium on Braun’s financial records and a
remaining life of six years.
Required:
b. What is the income to noncontrolling interest in 2006 if Crain has reported net
income of $229,000?
Answer:
Part a.
$244,200/6)]
$16,560)] + ($27,360 x 11/72)
$244,200) (23/72)]
Part b.

Green Enterprises (80 percent subsidiary) purchases $300,000 of Brown’s (parent)
bonds have a $13,440 unamortized premium on Brown’s financial records and a
remaining life of seven years.
Required:
b. What is the income to noncontrolling interest in 2006 if Green has reported net
income of $392,000?
Answer:
Part a.
Retained Earnings [$318,480 - ($300,000 + $13,440)] - 4,740
($5,040 x 5/84)
$300,000/7)]
$300,000) (17/84)]
Part b.

Fischer Corporation (80 percent subsidiary) purchases $120,000 of Booth’s (parent)
outstanding 8 percent bonds payable for $123,600 on November 30, 2005. At that date,
the bonds have a $5,100 unamortized premium on Booth’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Fischer has reported net
income of $194,000?
Answer:
Part a.
$120,000/5)]
$5,100)] + ($1,500 x 1/60)
Interest Expense ($120,000 x .08 - $5,100/5)
8,580
$120,000) (13/60)]
Part b.

Anderson Corporation (a 70 percent subsidiary) sells a machine to its parent, Turetsky
Enterprises, for $65,000 on December 31, 2005. At that date, the machine and
accumulated depreciation accounts on Anderson’s financial records are $140,000 and
$60,000, respectively. The machine has a remaining life of five years for Anderson and
is assigned a life of eight years when acquired by Turetsky.
Required:
a. Prepare the worksheet elimination for the intercompany transaction assuming that
b. What is the income to noncontrolling interest in 2005 if Anderson has reported
Answer:
Part a,
Machine ($140,000 - $65,000) 75,000
Loss on Sale of Machine [$65,000 - ($140,000 15,000
- $60,000)]
Part b.
Income to Noncontrolling Interest = ($243,000 + $15,000) .2 = $51,600

Willard Corporation (a 90 percent subsidiary) sells equipment to its parent, Brock
Enterprises, for $250,000 on December 31, 2005. At that date, the equipment and
accumulated depreciation accounts on Willard’s financial records are $460,000 and
$170,000, respectively. The equipment has a remaining life of six years for Willard and
is assigned a life of five years when acquired by Brock.
Required:
b. What is the income to noncontrolling interest in 2005 if Willard has reported net
income of $178,000?
Answer:
Part a.
Equipment ($460,000 - $250,000) 210,000
$170,000)]
Part b.

Martin Corporation (an 80 percent subsidiary) sells a machine to its parent, Carnes
accumulated depreciation accounts on Martin’s financial records are $90,000 and
$32,000, respectively. The machine has a remaining life of five years for Martin and is
assigned a life of four years when acquired by Carnes.
Required:
b. What is the income to noncontrolling interest in 2005 if Martin has reported net
income of $320,000?
Answer:
Part a.
Machine ($90,000 - $70,000) 20,000
Part b.
Income to Noncontrolling Interest = ($320,000 - $12,000) .2 = $61,600

Dearden Corporation (a 70 percent subsidiary) sells a building to its parent, Cox
Enterprises, for $370,000 on December 31, 2005. At that date, the building and
accumulated depreciation accounts on Dearden’s financial records are $350,000 and
$110,000, respectively. The building has a remaining life of ten years for Dearden and is
assigned a life of fifteen years when acquired by Cox.
Required:
b. What is the income to noncontrolling interest in 2005 if Dearden has reported net
income of $548,000?
Answer:
Part a.
$110,000)]
Building ($370,000 - $350,000) 20,000
Part b.

Bailey Corporation (an 80 percent subsidiary) sells a machine to its parent, Prentice
Enterprises, for $159,000 on May 1, 2005. At that date, the machine and accumulated
depreciation accounts on Bailey’s financial records are $400,000 and $114,400,
respectively. The machine has a remaining life of eight years for Bailey and is assigned a
life of ten years when acquired by Prentice.
Required:
b. What is the income to noncontrolling interest in 2005 if Bailey has reported net
income of $253,000?
Answer:
Part a.
Machine ($400,000 - $159,000) 241,000
Depreciation Expense [($159,000/120) 8] - [($400,000 - 8,440
$114,400)/120] 8
$114,400)]
Part b.
Income to Noncontrolling Interest = ($253,000 + $126,600 - $8,440) .2 = $74,232

Swindle Corporation (a 70 percent subsidiary) sells equipment to its parent, Valentine
Enterprises, for $324,000 on August 1, 2005. At that date, the equipment and
accumulated depreciation accounts on Swindle’s financial records are $750,000 and
$404,400, respectively. The equipment has a remaining life of eight years for Swindle
and is assigned a life of six years when acquired by Valentine.
Required:
b. What is the income to noncontrolling interest in 2005 if Swindle has reported net
income of $278,000?
Answer:
Part a.
Machine ($750,000 - $324,000) 426,000
Depreciation Expense [($324,000/72)5] - [($750,000 - 1,500
$404,400)/72]5
Loss on Sale of Equipment [$324,000 - 21,600
($750,000 - $404,400)]
Part b.
Income to Noncontrolling Interest = ($278,000 + $21,600 - $1,500) .3 = $89,430

Stockard Corporation (a 90 percent subsidiary) sells a machine to its parent, Howell
Enterprises, for $51,000 on October 1, 2005. At that date, the machine and accumulated
depreciation accounts on Stockard’s financial records are $65,000 and $20,000,
respectively. The machine has a remaining life of six years for Stockard and is assigned
a life of five years when acquired by Howell.
Required:
b. What is the income to noncontrolling interest in 2005 if Stockard has reported net
income of $157,000?
Answer:
Part a.
Machine ($65,000 - $51,000) 14,000
Depreciation Expense [($51,000/60)3] - 300
[($65,000 - $20,000)/60] 3
Accumulated Depreciation ($20,000 - $300) 19,700
Part b.
Income to Noncontrolling Interest = ($157,000 - $6,000 + $300) .1 = $15,130

Brenan Corporation (a 60 percent subsidiary) sells a building to its parent, Rasch
Enterprises, for $432,000 on February 1, 2005. At that date, the building and
accumulated depreciation accounts on Brenan’s financial records are $620,000 and
$242,000, respectively. The building has a remaining life of seven years for Brenan and
is assigned a life of nine years when acquired by Rasch.
Required:
b. What is the income to noncontrolling interest in 2005 if Brenan has reported net
income of $847,000?
Answer:
Part a.
Building ($620,000 - $432,000) 188,000
$242,000)]
Depreciation Expense ($432,000/108) (11) - 5,500
[($620,000 - $242,000)/108] (11)
Part b.
Income to Noncontrolling Interest = ($847,000 - $54,000 + $5,500) .4 = $319,400

Alexander Company (an 80 percent subsidiary) sells a machine to its parent, Gurley
accumulated depreciation accounts on Alexander’s financial records are $260,000 and
$129,800, respectively. The machine has a remaining life of seven years for Alexander
and is assigned a life of ten years when acquired by Gurley.
Required:
b. What is the income to noncontrolling interest in 2006 if Alexander has reported
Answer:
Part a.
Machine ($260,000 - $121,800) 138,200
Depreciation Expense ($121,800/10) - [($260,000 - 840
$129,800)]/10
$129,800)] .8
Noncontrolling Interest [$121,800 - ($260,000 - 1,680
$129,800)] .2
Accumulated Depreciation ($129,800 + $840) 130,640
Part b.
Income to Noncontrolling Interest = ($214,000 - $840) .2 = $42,632
Wolff Corporation (a 90 percent subsidiary) sells equipment to its parent, Hartman
Enterprises, for $144,000 on December 31, 2005. At that date, the equipment and
accumulated depreciation accounts on Wolff’s financial records are $200,000 and
$50,000, respectively. The equipment has a remaining life of eight years for Wolff and is
assigned a life of six years when acquired by Hartman.
Required:
b. What is the income to noncontrolling interest in 2006 if Wolff has reported net
income of $362,000?
Answer:
Part a.
Machine ($200,000 - $144,000) 56,000
Depreciation Expense ($144,000/6) - [$200,000 - 1,000
$50,000)/6]
$50,000)] .9
Noncontrolling Interest [$144,000 - ($200,000 - 600
$50,000)] .1
Part b.

Brannan Corporation (a 60 percent subsidiary) sells a machine to its parent, Jones
accumulated depreciation accounts on Brannan’s financial records are $400,000 and
$130,000, respectively. The machine has a remaining life of ten years for Brannan and is
assigned a life of five years when acquired by Jones.
Required:
b. What is the income to noncontrolling interest in 2006 if Brannan has reported net
income of $426,000?
Answer:
Part a.
Machine ($400,000 - $288,000) 112,000
Retained Earnings [$288,000 - ($400,000 - $130,000)] .6 10,800
$130,000)] .4
$130,000)/5]
Accumulated Depreciation ($130,000 - 3,600) 126,400
Part b.

Craig Company (an 80 percent subsidiary) sells a building to its parent, Ashton
Enterprises, for $540,000 on December 31, 2005. At that date, the building and
accumulated depreciation accounts on Craig’s financial records are $610,000 and
$154,000, respectively. The building has a remaining life of eight years for Craig and is
assigned a life of ten years when acquired by Ashton.
Required:
b. What is the income to noncontrolling interest in 2006 if Craig has reported net
income of $257,000?
Answer:
Part a.
Building ($610,000 - $540,000) 70,000
$154,000)] .2
$154,000)/10]
Part b.

Shanahan Company (a 70 percent subsidiary) sells a machine to its parent, Hatch
Enterprises, for $126,000 on June 1, 2005. At that date, the machine and accumulated
depreciation accounts on Shanahan’s financial records are $210,000 and $78,000,
respectively. The machine has a remaining life of six years for Shanahan and is assigned
a life of ten years when acquired by Hatch.
Required:
b. What is the income to noncontrolling interest in 2006 if Shanahan has reported
Answer:
Part a.
Machine ($210,000 - $126,000) 84,000
Depreciation Expense ($126,000/10) - [($210,000 - 600
$78,000)/10]
$78,000)] - {($126,000/120) (7) - [($210,000 -
$78,000)/120] (7)}} .7
Noncontrolling Interest {[$126,000 - ($210,000 - 1,695
$78,000)] - {($126,000/120) (7) - [($210,000 -
$78,000)/120] (7)}} .3
Accumulated Depreciation $78,000 + 78,950
{($126,000/120) (7) - [($210,000 -
$78,000)/120] (7)} + $600
Part b.
Income to Noncontrolling Interest = ($134,000 - $600) .3 = $40,020

Miller Corporation (a 90 percent subsidiary) sells equipment to its parent, Huss
Enterprises, for $180,000 on October 1, 2005. At that date, the equipment and
accumulated depreciation accounts on Miller’s financial records are $350,000 and
$134,000, respectively. The equipment has a remaining life of six years for Miller and is
assigned a life of five years when acquired by Huss.
Required:
b. What is the income to noncontrolling interest in 2006 if Miller has reported net
income of $146,000?
Answer:
Part a.
Machine ($350,000 - $180,000) 170,000
Depreciation Expense [($350,000 - $134,000)/5] - 7,200
($180,000/5)
$134,000)] - {($180,000/60)(3) - [($350,000 -
$134,000)/60](3)}}.9
$134,000)] - {($180,000/60)(3) - [($350,000 -
$134,000)/60](3)}.1
Accumulated Depreciation {$134,000 + 143,000
{[($350,000 - $134,000)/60](3) -
($180,000/60) (3)} + $7,200}
Part b.

Grant Company (an 80 percent subsidiary) sells a machine to its parent, Krissek
Enterprises, for $331,200 on May 1, 2005. At that date, the machine and accumulated
depreciation accounts on Grant’s financial records are $400,000 and $119,200,
respectively. The machine has a remaining life of eight years for Grant and is assigned a
life of six years when acquired by Krissek.
Required:
b. What is the income to noncontrolling interest in 2006 if Grant has reported net
income of $273,000?
Answer:
Part a.
Machine ($400,000 - $331,200) 68,800
{[($331,200/72)(8)] - [($400,000 - $119,200)/72](8)}}.8
$119,200)] - {[($331,200/72)(8)] - [($400,000 -
$119,200)/72](8)}}.2
$119,200)/6]
Accumulated Depreciation $119,200 - 105,200
{[($331,200/72) (8)] - [($400,000 -
$119,200)/72] (8)} - $8,400
Part b.

Jensen Corporation (a 90 percent subsidiary) sells a building to its parent, May
Enterprises, for $390,000 on September 1, 2005. At that date, the building and
accumulated depreciation accounts on Jensen’s financial records are $500,000 and
$140,000, respectively. The building has a remaining life of fifteen years for Jensen and
is assigned a life of twenty years when acquired by May.
Required:
b. What is the income to noncontrolling interest in 2006 if Jensen has reported net
income of $152,000?
Answer:
Part a.
Building ($500,000 - $390,000) 110,000
{[($390,000/240) (4)] - [($500,000 - 140,000)/240] (4)}}.9
$140,000)] - {[($390,000/240) (4)] - [($500,000 -
140,000)/240] (4)}}.1
Depreciation Expense ($390,000/20) - [($500,000 1,500
- $140,000)/20]
Accumulated Depreciation $140,000 - 138,000
{[($390,000/240) (4)] - [($500,000 -
$140,000)/240] (4)} - $1,500
Part b.

Jones Corporation owns 100 percent of Davis Company’s stock. On December 29, 2005,
Davis sells inventory with a cost of $70,000 to Jones for $82,000. Assuming none of this
inventory is sold to an unrelated party by the end of 2005, prepare the worksheet
elimination for this intercompany transaction for the preparation of the 2005 consolidated
financial statements.
Answer:
Sales 82,000
Inventory 12,000

Snow Corporation (100 percent subsidiary) sells inventory costing $42,000 to its parent
(Barbor Company) on December 21, 2005 for $47,000. None of this inventory is sold to
an unrelated party by the end of 2005. Prepare the worksheet elimination for this
intercompany transaction for the preparation of the 2005 consolidated financial
statements.
Answer:
Sales 47,000
Inventory 5,000

Billings Corporation owns 80 percent of Ewing Company’s stock. On December 30,
2005, Ewing sells inventory with a cost of $86,000 to Billings for $95,000. None of this
inventory is sold to an unrelated party by the end of 2005.
Required:
a. Prepare the worksheet elimination for this intercompany transaction for the
b. What is the income to noncontrolling interest in 2005 if Ewing has reported net
income of $253,000?
Answer:
Part a.
Sales 95,000
Inventory 9,000
Part b.

Michelman Corporation (a 70 percent subsidiary) sells inventory costing $23,000 to its
parent (Cottrill Company) on December 15, 2005 for $28,000. None of this inventory is
sold to an unrelated party by the end of 2005.
Required:
b. What is the income to noncontrolling interest in 2005 if Michelman has reported
Answer:
Part a.
Sales 28,000
Inventory 5,000
Part b.

Thorne Corporation owns 100 percent of Schilder Company’s stock. On November 15,
2005, Schilder sells inventory with a cost of $68,000 to Thorne for $80,000. Assume
$64,000. Prepare the worksheet elimination for this intercompany transaction for the
Answer:
Sales 80,000
$68,000) .7]
Inventory ($80,000 - $68,000) .3 3,600

Heitger Corporation (a 100 percent subsidiary) sells inventory costing $53,000 to its
parent (Goodson Company) on October 22, 2005 for $73,000. Goodson sells 40 percent
of this inventory to an unrelated party by the end of 2005 for $34,000. Prepare the
worksheet elimination for this intercompany transaction for the preparation of the 2005
Answer:
Sales 73,000
$53,000) .4]
Inventory ($73,000 - $53,000) .6 12,000

Henry Corporation owns 90 percent of Smith Company’s stock. On December 4, 2005,
Smith sells inventory with a cost of $56,000 to Henry for $62,000. Assume that 70
percent of this inventory is sold to an unrelated party by the end of 2005 for $49,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Henry has reported net
income of $81,000?
Answer:
Part a.
Sales 62,000
$56,000) .7]
Inventory ($62,000 - $56,000) .3 1,800
Part b.

Kovar Corporation (an 80 percent subsidiary) sells inventory costing $76,000 to its
parent (Healy Company) on September 26, 2005 for $88,000. Healy sells 90 percent of
this inventory to an unrelated party by the end of 2005 for $103,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Kovar has reported net
income of $152,000?
Answer:
Part a.
Sales 88,000
Cost of Goods Sold [$76,000 - ($88,000 - 86,800
$76,000) .9]
Inventory ($88,000 - $76,000) .1 1,200
Part b.

Meeting Corporation owns 100 percent of Frasier Company’s stock. On August 16,
2005, Frasier sells inventory with a cost of $47,000 to Meeting for $53,000. Assume that
Prepare the worksheet elimination for this intercompany transaction for the preparation
of the 2005 consolidated financial statements.
Answer:
Sales 53,000

Skelly Corporation (a 100 percent subsidiary) sells inventory costing $80,000 to its
parent (Goran Company) on September 19, 2005 for $87,000. Goran sells this entire
inventory to an unrelated party by the end of 2005 for $94,000. Prepare the worksheet
elimination for this intercompany transaction for the preparation of the 2005 consolidated
Answer:
Sales 87,000

White Corporation owns 70 percent of Shockley Company’s stock. On November 13,
2005, Shockley sells inventory with a cost of $38,000 to White for $41,000. Assume that
Required:
b. What is the income to noncontrolling interest in 2005 if Shockley has reported net
income of $97,000?
Answer:
Part a.
Sales 41,000
Part b.

Hardy Corporation (a 90 percent subsidiary) sells inventory costing $69,000 to its parent
(Larson Company) on October 14, 2005 for $77,000. Larson sells this entire inventory
to an unrelated party by the end of 2005 for $82,000.
Required:
b. What is the income to noncontrolling interest in 2005 if Hardy has reported net
income of $88,000?
Answer:
Part a.
Sales 77,000
Part b.

Norgaard Corporation owns 100 percent of Kelly Company’s stock. On December 29,
2005, Kelly sells inventory with a cost of $37,000 to Norgaard for $46,000. Assuming
none of this inventory is sold to an unrelated party by the end of 2005 and 60 percent is
sold to an unrelated party in 2006 for $31,000, prepare the intercompany transaction
Answer:
Inventory ($46,000 - $37,000) .4 3,600

Harden Corporation (a 100 percent subsidiary) sells inventory costing $81,000 to its
parent (Luna Company) on December 16, 2005 for $89,000. None of this inventory is
sold to an unrelated party by the end of 2005. However, 70 percent is sold to unrelated
parties in 2006 for $75,000. Prepare the intercompany transaction worksheet elimination
for the preparation of the 2006 consolidated financial statements.
Answer:
Inventory ($89,000 - $81,000) .3 2,400

Wehrley Corporation owns 80 percent of Rupert Company’s stock. On December 19,
2005, Rupert sells inventory with a cost of $52,000 to Wehrley for $61,000. None of this
inventory is sold to an unrelated party by the end of 2005 and 70 percent is sold to
unrelated parties in 2006.
Required:
b. What is the income to noncontrolling interest in 2006 if Rupert has reported net
income of $58,000?
Answer:
Part a.
Retained Earnings ($61,000 - $52,000) .8 7,200
Noncontrolling Interest ($61,000 - $52,000) .2 1,800
Inventory ($61,000 - $52,000) .3 2,700
Part b.

Schwartz Corporation (an 80 percent subsidiary) sells inventory costing $83,000 to its
parent (Whitmore Company) on December 17, 2005 for $88,000. None of this inventory
is sold to an unrelated party by the end of 2005. However, 90 percent is sold to unrelated
parties in 2006 for $91,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Schwartz has reported net
income of $168,000?
Answer:
Part a.
Retained Earnings ($88,000 - $83,000) .8 4,000
Noncontrolling Interest ($88,000 - $83,000) .2 1,000
Inventory ($88,000 - $83,000) .1 500
Part b.

Patton Corporation owns 100 percent of Bolin Company’s stock. On October 22, 2005,
Bolin sells inventory with a cost of $29,000 to Patton for $41,000. Assume that 40
percent of this inventory is sold to unrelated parties by the end of 2005 for $20,000 and
the remainder is sold to unrelated parties in 2006 for $31,000. Prepare the relevant
Answer:
$29,000) .4

Smith Corporation (a 100 percent subsidiary) sells inventory costing $56,000 to its parent
(Nelson Company) on October 15, 2005 for $62,000. Nelson sells 70 percent of this
inventory to unrelated parties by the end of 2005 for $48,000 and the remainder is sold to
unrelated parties in 2006 for $23,000. Prepare the relevant worksheet elimination for the
Answer:
$56,000) .7

Miller Corporation owns 70 percent of Simon Company’s stock. On December 1, 2005,
Simon sells inventory with a cost of $29,000 to Miller for $36,000. Assume that 20
the remainder is sold to unrelated parties in 2006 for $34,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Simon has reported net
income of $58,000?
Answer:
Part a.
Retained Earnings [($36,000 - $29,000) - ($36,000 - 3,920
$29,000) .2] .7
Noncontrolling Interest [($36,000 - $29,000) - ($36,000 - 1,680
$29,000) .2] .3
Part b.

Kang Corporation (a 90 percent subsidiary) sells inventory costing $70,000 to its parent
(Johnson Company) on September 18, 2005 for $83,000. Johnson sells 70 percent of this
inventory to unrelated parties by the end of 2005 for $60,000 and the remainder is sold to
unrelated parties by the end of 2006 for $32,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Kang has reported net
income of $160,000?
Answer:
Part a.
$70,000) .7] .9
Noncontrolling Interest [($83,000 - $70,000) - ($83,000 - 390
$70,000) .7] .1
Part b.

Freeman Corporation owns 100 percent of Teather Company’s stock. On November 26,
2005, Teather sells inventory with a cost of $80,000 to Freeman for $92,000. Assume
that 10 percent of this inventory is sold to unrelated parties by the end of 2005 for
$15,000 and that an additional 70 percent is sold to unrelated parties in 2006 for $72,000.
Prepare the relevant worksheet elimination for the preparation of the 2006 consolidated
Answer:
$80,000) .1
Inventory ($92,000 - $80,000) .2 2,400

Danile Corporation (a 100 percent subsidiary) sells inventory costing $75,000 to its
parent (Jennings Company) on November 13, 2005 for $86,000. Jennings sells 20
percent of this inventory to unrelated parties by the end of 2005 for $24,000 and an
additional 70 percent is sold to unrelated parties in 2006 for $67,000. Prepare the
relevant worksheet elimination for the preparation of the 2006 consolidated financial
statements.
Answer:
$75,000) .2
Inventory ($86,000 - $75,000) .1 1,100

Broden Corporation owns 70 percent of Kelly Company’s stock. On December 15, 2005,
Kelly sells inventory with a cost of $37,000 to Broden for $45,000. Assume that 10
an additional 65 percent is sold to unrelated parties in 2006 for $36,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Kelly has reported net
income of $153,000?
Answer:
Part a.
$37,000) .1] .7
Noncontrolling Interest [($45,000 - $37,000) - 2,160
($45,000 - $37,000) .1] .3
Inventory ($45,000 - $37,000) .25 2,000
Part b.

Steed Corporation (an 80 percent subsidiary) sells inventory costing $57,000 to its parent
(Pant Company) on December 3, 2005 for $65,000. Pant sells 10 percent of this
inventory to unrelated parties by the end of 2005 for $8,000 and an additional 75 percent
is sold to unrelated parties by the end of 2006 for $72,000.
Required:
b. What is the income to noncontrolling interest in 2006 if Steed has reported net
income of $205,000?
Answer:
Part a.
$57,000) .1] .8
Noncontrolling Interest [($65,000 - $57,000) - 1,440
($65,000 - $57,000) .1] .2
Inventory ($65,000 - $57,000) .15 1,200
Part b.

Brown Enterprises purchases $100,000 of Grey’s (70 percent subsidiary) outstanding
bonds payable for $96,000 on December 31, 2005. At that date, the bonds have a $5,000
unamortized discount on Grey’s financial records and a remaining life of five years.
Required:
b. What is the income to noncontrolling interest in 2005 if Grey has reported net
income of $180,000?
Answer:
Part a.
Part b.

Alexander Enterprises purchases $50,000 of Shaker’s (60 percent subsidiary) outstanding
unamortized discount on Shaker’s financial records and a remaining life of four years.
Required:
b. What is the income to noncontrolling interest in 2005 if Shaker has reported net
income of $125,000?
Answer:
Part a.
Gain on Early Retirement of Debt 800
Part b.
Income to Noncontrolling Interest = ($125,000 + $800) .4 = $50,320

Perry Corporation purchases $150,000 of Reed’s (80 percent subsidiary) outstanding
bonds payable for $168,000 on December 31, 2005. At that date, the bonds have a
$4,500 unamortized discount on Reed’s financial records and a remaining life of three
years.
Required:
b. What is the income to noncontrolling interest in 2005 if Reed has reported net
income of $268,000?
Answer:
Part a.
Part b.

Heel Corporation purchases $70,000 of Shoe’s (70 percent subsidiary) outstanding bonds
unamortized discount on Shoe’s financial records and a remaining life of four years.
Required:
b. What is the income to noncontrolling interest in 2005 if Shoe has reported net
income of $180,000?
Answer:
Part a.
Part b.

Brewer Corporation purchases $90,000 of Wilson’s (90 percent subsidiary) outstanding
unamortized premium on Wilson’s financial records and a remaining life of five years
Required:
b. What is the income to noncontrolling interest in 2005 if Wilson has reported net
income of $128,000?
Answer:
Part a.
Part b.

Tahoe Corporation purchases $250,000 of Reno’s (80 percent subsidiary) outstanding
$15,000 unamortized premium on Reno’s financial records and a remaining life of ten
years.
Required:
b. What is the income to noncontrolling interest in 2005 if Reno has reported net
income of $290,000?
Answer:
Part a.
Part b.

Pasta Corporation purchases $200,000 of Spaghetti’s (70 percent subsidiary) outstanding
$16,000 unamortized premium on Spaghetti’s financial records and a remaining life of
eight years.
Required:
b. What is the income to noncontrolling interest in 2005 if Spaghetti has reported
Answer:
Part a.
Part b.

Regna Corporation purchases $300,000 of Dudley’s (60 percent subsidiary) outstanding
$30,000 unamortized premium on Dudley’s financial records and a remaining life of six
years.
Required:
b. What is the income to noncontrolling interest in 2005 if Dudley has reported net
income of $352,000?
Answer:
Part a.
Part b.

Clark Enterprises purchases $50,000 of Bishop’s (80 percent subsidiary) 9 percent
outstanding bonds payable for $47,000 on March 1, 2005. At that date, the bonds have a
$4,200 unamortized discount on Bishop’s financial records and a remaining life of five
years. Discounts and premiums are amortized straight-line.
Required:
b. What is the income to noncontrolling interest in 2005 if Bishop has reported net
income of $163,000?
Answer:
Part a.
$4,200)]
Interest Revenue ($50,000 x .09) (10/12) + ($50,000 - 4,250
$47,000) (10/60)
Interest Expense ($50,000 x .09) (10/12) + 4,450
($4,200 x 10/60)
$47,000) (10/60)]
Part b.
Income to Noncontrolling Interest = ($163,000 - $1,200 - $4,250 + $4,450) .2 = $32,400

Aaron Enterprises purchases $300,000 of Spelling’s (90 percent subsidiary) 6 percent
outstanding bonds payable for $282,000 on August 1, 2005. At that date, the bonds have
a $15,000 unamortized discount on Spelling’s financial records and a remaining life of
75 months. Discounts and premiums are amortized straight-line.
Required:
b. What is the income to noncontrolling interest in 2005 if Spelling has reported net
income of $251,000.
Answer:
Part a.
Interest Revenue ($300,000 x .06)(5/12) + ($300,000 - 8,700
$282,000) (5/75)
($15,000 x 5/75)
Gain on Early Debt Retirement ($300,000 - 3,000
$15,000) - $288,000
Investment in Bonds [$282,000 + ($300,000 283,200
- $282,000) (5/75)]
Part b.
Income to Noncontrolling Interest = ($251,000 + $3,000 + 8,500 - $8,700) .1 = $25,380

East Coast Corporation purchases $250,000 of Midwest’s (80 percent subsidiary) 4
percent outstanding bonds payable for $275,500 on September 30, 2005. At that date,
the bonds have a $12,000 unamortized discount on Midwest’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2005 if Midwest has reported net
income of $384,000?
Answer:
Part a.
Loss on Early Debt Retirement [$275,500 - ($250,000 37,500
- $12,000)]
Interest Revenue [($250,000 x .04)(3/12) - ($275,500 - 1,225
$250,000) (3/60)]
($12,000/60) 3
Discount on Bonds Payable ($12,000/60) 57 11,400
$250,000)/60] 3}
Part b.
Income to Noncontrolling Interest = ($384,000 - $37,500 - $1,225 + $3,100) .2 =
$69,675
Flagstone Corporation purchases $200,000 of Quary’s (90 percent subsidiary) 5 percent
outstanding bonds payable for $218,000 on March 31, 2005. At that date, the bonds have
a $10,800 unamortized discount on Quary’s financial records and a remaining life of six
years.
Required:
b. What is the income to noncontrolling interest in 2005 if Quary has reported net
income of $315,000?
Answer:
Part a.
Loss on Early Debt Retirement [$218,000 - 28,800
($200,000 - $10,800)]
Interest Revenue ($200,000 x .05)(9/12) - 5,250
($218,000 - $200,000) (9/72)
$10,800 x 9/72
Discount on Bonds Payable $10,800 x 63/72 9,450
$200,000) 9/72]
Part b.
$28,980

Milton Corporation purchases $200,000 of McDermott’s (60 percent subsidiary) 6
percent outstanding bonds payable for $180,800 on May 31, 2005. At that date, the
bonds have a $4,800 unamortized premium on McDermott’s financial records and a
remaining life of four years.
Required:
b. What is the income to noncontrolling interest in 2005 if McDermott has reported
Answer:
Part a.
Interest Revenue [($200,000 x .06) (7/12) + 9,800
[($200,000 - $180,800) 7/48)]
($4,800 x 7/48)]
($200,000 + $4,800)]
$180,800) 7/48)]}
Part b.
Income to Noncontrolling Interest = ($184,000 + $24,000 + $6,300 - $9,800) .4 =
$81,800

Cooper Corporation purchases $100,000 of Gardner’s (80 percent subsidiary) 5 percent
outstanding bonds payable for $94,000 on September 30, 2005. At that date, the bonds
have a $9,000 unamortized premium on Gardner’s financial records and a remaining life
of five years.
Required:
b. What is the income to noncontrolling interest in 2005 if Gardner has reported net
income of $163,000?
Answer:
Part a.
Interest Revenue ($100,000 x .05 x 3/12) + 1,550
($100,000 - $94,000) (3/60)
Interest Expense [($100,000 x .05) (3/12) - 800
($9,000 x 3/60)]
($100,000 + $9,000)]
Investment in Bonds {$94,000 + 94,300
[($100,000 - $94,000) 3/60}
Part b.
Income to Noncontrolling Interest = ($163,000 + $15,000 + $800 - $1,550) .2 = $35,450

Kelley Corporation purchases $150,000 of Green’s (90 percent subsidiary) 9 percent
outstanding bonds payable for $160,800 on November 1, 2005. At that date, the bonds
have an $18,000 unamortized premium on Green’s financial records and a remaining life
of six years.
Required:
b. What is the income to noncontrolling interest in 2005 if Green has reported net
income of $82,000?
Answer:
Part a.
Interest Revenue ($150,000 x .09 x 2/12) - 1,950
($160,800 - $150,000) (2/72)
($18,000 x 2/72)]
($150,000 + $18,000)]
Investment in Bonds {$160,800 - 160,500
[($160,800 - $150,000) 2/72]}
Part b.
Income to Noncontrolling Interest = ($82,000 + $7,200 + $1,750 - $1,950) .1 = $8,900

Mangold Enterprises purchases $300,000 of Joyce’s (80 percent subsidiary) 10 percent
outstanding bonds payable for $360,000 on March 1, 2005. At that date, the bonds have
a $45,000 unamortized premium on Joyce’s financial records and a remaining life of ten
years.
Required:
b. What is the income to noncontrolling interest in 2005 if Joyce has reported net
income of $640,000?
Answer:
Part a.
Loss on Early Debt Retirement [$360,000 - 15,000
($300,000 + $45,000)]
Interest Revenue ($300,000 x .10 x 10/12) - 20,000
($360,000 - $300,000) (10/120)
($45,000 x 10/120)]
$300,000) 10/120]}
Part b.
$125,250
CCRI Enterprises purchases $200,000 of Simone’s (80 percent subsidiary) outstanding 9
percent bonds payable for $191,000 on December 31, 2005. At that date, the bonds have
a $12,000 unamortized discount on Simone’s financial records and a remaining life of six
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Simone has reported net
income of $248,000?
Answer:
Part a.
$191,000/6)]
$12,000)] .2
Discount on Bonds Payable [$12,000 - 10,000
($12,000/6)]
Interest Expense [$200,000 x .09 + 20,000
($12,000/6)]
$191,000/6)]
Part b.

El Paso Corporation purchases $150,000 of Santa Fe’s (70 percent subsidiary)
the bonds have a $2,400 unamortized discount on Santa Fe’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Santa Fe has reported net
income of $341,000?
Answer:
Part a.
$147,000/12)]
Retained Earnings [$147,000 - ($150,000 - 420
$2,400)] .7
$2,400)] .3
$147,000/12)]
Part b.

Benjamin Enterprises purchases $500,000 of Simpson’s (60 percent subsidiary)
the bonds have a $15,000 unamortized discount on Simpson’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Simpson has reported net
income of $405,000?
Answer:
Part a.
$500,000/5)]
$15,000)] .4
$500,000/5)]
Part b.

Parks Corporation purchases $250,000 of Schmidt’s (80 percent subsidiary) outstanding
8 percent bonds payable for $270,000 on December 31, 2005. At that date, the bonds
have a $12,000 unamortized discount on Schmidt’s financial records and a remaining life
of 10 years.
Required:
b. What is the income to noncontrolling interest in 2006 if Schmidt has reported net
income of $138,000?
Answer:
Part a.
$250,000/10)]
$12,000)] .2
$250,000/10)]
Part b.

Macklin Enterprises purchases $100,000 of Berry’s (90 percent subsidiary) outstanding 6
percent bonds payable for $94,000 on December 31, 2005. At that date, the bonds have a
$12,000 unamortized premium on Berry’s financial records and a remaining life of six
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Berry has reported net
income of $186,000?
Answer:
Part a.
$94,000/6)]
$12,000)] .9
Noncontrolling Interest [$94,000 - ($100,000 + 1,800
$12,000)] .1
Interest Expense [$100,000 x .06 - 4,000
($12,000/6)]
$94,000/6)]
Part b.
Werley Corporation purchases $200,000 of Krause’s (70 percent subsidiary) outstanding
have a $9,000 unamortized premium on Krause’s financial records and a remaining life
of 10 years.
Required:
b. What is the income to noncontrolling interest in 2006 if Krause has reported net
income of $184,000?
Answer:
Part a.
$187,000/10)]
$9,000)] .7
$9,000)] .3
Interest Expense ($200,000 x .07 - 13,100
$9,000/10)
$187,000/10)]
Part b.

Judd Enterprises purchases $300,000 of McKnight’s (70 percent subsidiary) outstanding
have a $15,000 unamortized premium on McKnight’s financial records and a remaining
life of six years.
Required:
b. What is the income to noncontrolling interest in 2006 if McKnight has reported
Answer:
Part a.
Retained Earnings [$324,000 - ($300,000 + $15,000)] .7 6,300
$15,000)] .3
$300,000/6)]
Interest Expense [$300,000 x .08 - 21,500
($15,000/6)]
$300,000/6)]
Part b.

Griffin Corporation purchases $150,000 of Sullivan’s (90 percent subsidiary) outstanding
have a $19,000 unamortized premium on Sullivan’s financial records and a remaining
life of 10 years.
Required:
b. What is the income to noncontrolling interest in 2006 if Sullivan has reported net
income of $285,000?
Answer:
Part a.
$150,000/10)]
$19,000)] .9
Noncontrolling Interest [$165,000 - ($150,000 + 400
$19,000)] .1
Interest Expense ($150,000 x .09 - 11,600
$19,000/10)
$150,000/10)]
Part b.

Lexington Enterprises purchases $100,000 of Frankfort’s (70 percent subsidiary)
bonds have a $3,900 unamortized discount on Frankfort’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Frankfort has reported
Answer:
Part a.
Interest Revenue [($100,000 x .03) + ($100,000 - 3,420
$97,900/5)]
$3,900)] - ($1,800 x 5/60)} .7
Noncontrolling Interest {[$97,900 - ($100,000 - 495
$3,900)] - ($1,800 x 5/60)} .3
Interest Expense [$100,000 x .03 + 3,780
($3,900/5)]
$97,900) (17/60)]
Part b.

Dallas Corporation purchases $250,000 of Houston’s (90 percent subsidiary) outstanding
6 percent bonds payable for $238,000 on October 31, 2005. At that date, the bonds have
a $9,000 unamortized discount on Houston’s financial records and a remaining life of 10
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Houston has reported net
income of $330,000?
Answer:
Part a.
$238,000/10)]
$9,000)] + ($3,000 x 2/120)} .9
Noncontrolling Interest {[$238,000 - ($250,000 - 295
$9,000)] + ($3,000 x 2/120)} .1
$238,000) (14/120)]
Part b.

Pauline Enterprises purchases $200,000 of Sam’s (70 percent subsidiary) outstanding 9
percent bonds payable for $230,000 on March 1, 2005. At that date, the bonds have a
$3,000 unamortized discount on Sam’s financial records and a remaining life of five
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Sam has reported net
income of $175,000?
Answer:
Part a.
$200,000/5)]
$3,000)] - ($33,000 x 10/60)} .7
$3,000)] - ($33,000 x 10/60)} .3
$200,000) (22/60)]
Part b.

Rigoli Corporation purchases $300,000 of Whitaker’s (60 percent subsidiary) outstanding
6 percent bonds payable for $324,000 on August 31, 2005. At that date, the bonds have a
$15,000 unamortized discount on Whitaker’s financial records and a remaining life of 10
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Whitaker has reported net
income of $617,000?
Answer:
Part a.
$300,000/10)]
Retained Earnings [$324,000 - ($300,000 - $15,000) - 22,620
($39,000 x 4/120)] .6
$15,000) - ($39,000 x 4/120)] .4
Discount on Bonds Payable [$15,000 x 13,000
104/120)]
Interest Expense ($300,000 x .06 + 19,500
$15,000/10)
$300,000) (16/120)]
Part b.

Carter Enterprises purchases $100,000 of Malloy’s (80 percent subsidiary) outstanding 5
percent bonds payable for $98,200 on March 31, 2005. At that date, the bonds have a
$6,000 unamortized premium on Malloy’s financial records and a remaining life of five
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Malloy has reported net
income of $86,000?
Answer:
Part a.
$98,200/5)]
Retained Earnings {[$98,200 - ($100,000 + 5,304
$6,000)] + ($7,800 x 9/60)} .8
Noncontrolling Interest {[$98,200 - ($100,000 + 1,326
$6,000)] + ($7,800 x 9/60)} .2
$98,000) (21/60)]
Part b.

Kunz Corporation purchases $250,000 of Greenberg’s (80 percent subsidiary)
outstanding 8 percent bonds payable for $232,000 on September 30, 2005. At that date,
the bonds have a $15,000 unamortized premium on Greenberg’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Greenberg has reported
Answer:
Part a.
$232,000/10)]
$15,000)] + ($33,000 x 3/120)} .8
$15,000)] + ($33,000 x 3/120)} .2
$232,000) (15/120)]
Part b.

Lane Enterprises purchases $150,000 of Stoner’s (80 percent subsidiary) outstanding 6
percent bonds payable for $171,000 on January 31, 2005. At that date, the bonds have a
$15,000 unamortized premium on Stoner’s financial records and a remaining life of five
years.
Required:
b. What is the income to noncontrolling interest in 2006 if Stoner has reported net
income of $228,000?
Answer:
Part a.
$15,000)] - ($6,000 x 11/60)}.8
Noncontrolling Interest {[$171,000 - ($150,000 + 980
$15,000)] - ($6,000 x 11/60)}.2
$150,000/5)]
$150,000) (23/60)]
Part b.

Lambert Corporation purchases $150,000 of Cameron’s (80 percent subsidiary)
outstanding 9 percent bonds payable for $168,000 on November 30, 2005. At that date,
the bonds have a $24,000 unamortized premium on Cameron’s financial records and a
Required:
b. What is the income to noncontrolling interest in 2006 if Cameron has reported net
income of $272,000?
Answer:
Part a.
$150,000/10)]
$24,000)] + ($6,000 x 1/120)} .8
$24,000)] + ($6,000 x 1/120)} .2
$150,000) (13/120)]
Part b.
Short Answer Questions

436. David is a new accountant in the controller’s office. He recently was in a group where
the elimination of intercompany transactions was discussed. He is confused because
these are transaction that did occur. Cash did transfer between one party and another and
the inventory was shipped. Explain to David why these types of transactions must be
eliminated from the consolidated financial statements.
Answer: From the consolidated entity’s perspective, the transaction is unrealized because
unrelated parties are not involved. As a result, the transaction must be removed from the
consolidated financial statements so they are not misleading.
437. Rachel is reading the annual report of a company whose stock she owns. This is the first
time she has really looked at any of the financial information and she is confused about
the term intercompany transaction. Prepare a short note explaining what is meant by the
term and how it impacts the financial statements.
Answer: Intercompany transactions occur when one unit of an entity is involved in a

transaction with another unit of the same entity. Failure to remove these transactions
from the consolidated financial statements would misstate income statement and balance
sheet accounts and may mislead financial statement users.
438. Jack Harris is a new board member of a local corporation. During a recent board
meeting, the consolidated financial statements were presented and discussed. The
controller commented that upstream and downstream intercompany transactions were
eliminated, but there were no lateral transactions this period. Jack is confused by the
terms upstream, downstream, and lateral. Prepare a short note explaining what the
controller was discussing.
Answer: A downstream transaction exists when there is a transaction that flows from the
parent to the subsidiary such as the parent selling inventory to the subsidiary. An
upstream transaction occurs when the flow is from the subsidiary to the parent, such as
the parent purchasing a bond initially issued by the subsidiary. A lateral transaction
occurs when the flow is from one subsidiary to another subsidiary, such as one subsidiary
selling equipment to another subsidiary.
439. You have been assigned the task of discussing the implications of purchasing a subsidiary
with a group of owners about to engage in their first acquisition. The discussion
develops smoothly until you reach the subject of intercompany transactions. The owners
do not need to understand the accounting procedures for these transactions but they are
very confused about why the issue must be addressed. Prepare a brief memo to the
owners explaining the general objective of the consolidation process insofar as
intercompany transactions are concerned.
Answer: Intercompany transactions exist when the two parties involved in the transaction
are not independent of each other, i.e., they are related. If the intercompany transaction
is not removed from the consolidated financial statements, the company will be
disclosing a transaction that occurred with itself. As a result, the financial statements will
be misleading. The published financial statements may only include the results of
transactions that the entity has had with unrelated parties.
440. A new manager for a client has called requesting an interpretation regarding the
worksheet eliminations prepared for her division. She understands that intercompany
profits must be eliminated in the period of the transaction but she is confused about
subsequent adjustment(s) to retained earnings for downstream transactions. She is even
more confused about subsequent adjustments(s) to retained earnings and noncontrolling
interest for upstream transactions. Prepare a brief memo to the manager explaining why
the subsequent period adjustments are necessary.
Answer: The profits pertaining to a downstream sale are closed to the parent’s retained
earnings at the end of the period when the transaction occurred. As a result, the retained
earnings are misstated by the amount of the unrealized profit from the intercompany
transaction. This results in an adjustment to retained earnings to correct this
misstatement.
When the intercompany transaction is upstream, the profit is closed to the subsidiary’s
retained earnings at the end of the period in which the transaction occurred. The parent’s
share of the unrealized profit is transferred to the parent’s income statement and
subsequently to the parent’s retained earnings via the equity method journal entries.
Therefore, the parent’s retained earnings must be adjusted for the parent’s share of the
unrealized profit. When the subsidiary’s beginning retained earnings is eliminated, the
noncontrolling interest portion of the unrealized profit is transferred to the noncontrolling
interest account. As a result, the noncontrolling interest is misstated by its share of the
unrealized profit so the noncontrolling interest account must also be adjusted.
441. Philip is a new staff accountant helping prepare the worksheet eliminations prior to
compiling the consolidated financial statements. He asks why eliminating some of the
intercompany transactions results in an adjustment to the Income to Noncontrolling
Interest while other intercompany transactions do not result in such an adjustment even
for the same subsidiary? How do you respond to Philip?
Answer: Intercompany transactions can be upstream (subsidiary sells to or borrows from

the parent) or downstream (parent sells to or borrows from the subsidiary). When the
transaction is upstream, the income statement effects are on the subsidiary’s books so the
subsidiary’s income statement must be adjusted. An adjustment to the subsidiary’s
income statement changes the income allocated to the noncontrolling interest. When the
transaction is downstream, the income statement effects are on the parent’s financial
records so the subsidiary’s income statement is not adjusted. As a result, the income
allocated to the noncontrolling interest is not altered by downstream transactions.
442. Why does an upstream or lateral intercompany transaction in the current period impact
the basic worksheet eliminations while a downstream intercompany transaction does not?
Answer: The upstream and lateral intercompany transactions have income statement
implications for the subsidiary while the downstream intercompany transaction only has
income statement implications for the parent. The parent uses the subsidiary income
statement to allocate income to noncontrolling interest so this amount must be modified.
443. A member of management has just been promoted to a level where he will receive part of
his compensation based on the company’s overall performance. As a result of this
change in compensation, this manager has become more interested in how the
consolidated financial statements are prepared. He recently asked why upstream
intercompany transactions in prior periods do not have to be considered when eliminating
the subsidiary’s stockholders’ equity. He goes on to state that the transaction’s impact the
subsidiary’s prior period net income so it would impact this period’s retained earnings.
Prepare a response to this manager.
Answer: The amount of income or loss resulting from the upstream intercompany
transaction in a prior period became part of the subsidiary’s net income. As a result the
subsidiary’s retained earnings did change; however, the parent’s investment income
reflected the parent’s ownership interest in the income or loss so the parent’s investment
in subsidiary account also changed. The worksheet elimination completely removes the
subsidiary’s retained earnings and the investment income and the noncontrolling interest
portion of the income or loss is assigned to the noncontrolling interest. As a result, the
upstream intercompany transaction is self-correcting because the amounts automatically
change to reflect the change in retained earnings and investment in subsidiary.
444. Why is the additional worksheet elimination needed to remove the impact of an
intercompany transaction not altered by the direction of the transaction in the period of
the intercompany transaction?
Answer: The difference that exists among upstream, downstream, and lateral
intercompany transactions exist because of the allocation of gains and losses to equity. In
the period of the intercompany transaction, the income statement has not been closed to
retained earnings so any gain or loss that exists has not been allocated to equity so the
worksheet elimination needed is the same regardless of the transaction’s direction.
445. Jack is a new manager in a regional company. This is his first position where
consolidated financial statements are important to his job. Jack wants to understand the
statements and the controller has shown him the elimination process. After looking over
the last three years of worksheet eliminations, Jack calls with a question. He asks, “Why
do we adjust the plant asset account for the same dollar amount every period? It looks
like we are writing down the same asset every period. Does this not understate the
assets?” How do you respond?
Answer: The same asset is being adjusted every period. This is necessary because the
worksheet eliminations exist only on the consolidation worksheet. They are not posted to
the financial records of any company. As a result, the plant asset account is not really
changed on the books. The adjustment every period accomplishes the same result; it
restates the asset to the historical cost of the original owner.
446. Explain how the dollar amount of the worksheet elimination resulting from the
intercompany sale of a plant asset is determined in the period of the transaction. In
addition, also explain how the dollar amount of the adjustment to plant assets is
determined in periods subsequent to the intercompany transaction.
Answer The dollar amount of the plant asset worksheet elimination is the difference
between the original cost of the asset and the dollar amount of the intercompany
transaction. The dollar amount of the plant asset worksheet elimination will be the same
in all periods until the asset is transferred to an external party or scrapped.
447. Two of your classmates are discussing intercompany transactions in preparation for an
upcoming exam. They have a disagreement about a technical issue relating to the
worksheet elimination for plant assets. Sally states that she heard the professor say that
the worksheet elimination for an intercompany sale of plant assets in the period of the
transaction is the same regardless of the month in which the transaction occurred.
Richard says that he is not certain that Sally heard things correctly. He said it seems that
the timing of the transaction would affect the worksheet elimination. You just got into
the conversation, what is your opinion on this issue?
Answer: Parts of the worksheet elimination are the same regardless of when the
transaction occurs while other parts are different. If the transaction occurs at the end of
the period, there is no adjustment to depreciation expense. However, if the transaction
occurs during the period, a depreciation expense adjustment is needed and given a sale at
a particular price, parts of the worksheet elimination are affected by the exact timing of
the sale. The adjustment to restore the historical cost will be the same. However, the
calculated amount of gain or loss, the adjustment to depreciation expense, and the
adjustment to accumulated depreciation will be affected by the transaction date. The
latter three items are affected because the book value on the seller’s financial records at
the transaction date changes as the year progresses.
448. Worksheet eliminations are prepared to eliminate 100 percent of the unrealized profit
from the land account in a downstream sale of land. Is 100 percent also eliminated for an
upstream sale of land? Explain.
Answer: Regardless of the direction of the transaction, from the consolidated entity’s
perspective, the transaction does not exist. As a result, all of the intercompany gain or
loss must be eliminated and the land must be restated to its original historical cost.
449. Occasionally, a plant asset acquired in an intercompany sale is disposed of prior to the
expiration of its estimated useful life. From a consolidated viewpoint, explain the
accounting treatment necessary to record this event.
Answer: The gain or loss recognized on the consolidated income statement at the disposal
date is based on the original historical cost because the intercompany transaction is
viewed as if it had not occurred.
450. Allison, a new assistant controller, has been reviewing the intercompany transaction
worksheet elimination for her new company. This is the first time she has worked for a
company where intercompany inventory transactions have existed. She notices that this
subsidiary is engaged in inventory transactions with several other related companies. In
some instances the inventory sold internally is still all on the purchasers financial records
while in other instances part of the inventory has been sold to unrelated parties. Allison
is confused about the elimination of the intercompany sales amount. It seems that the
full intercompany sales amount is eliminated regardless of whether any of the inventory
has been sold externally or not. Prepare a short note explaining to Allison the reason that
the complete intercompany sale must be eliminated in all situations.
Answer: The elimination of intercompany sales is independent of whether any of the
inventory has been sold to unrelated parties. The sale was to a related party so the
inventory did not leave the consolidated entity. As a result, the consolidated financial
statements will fully remove the intercompany sale of inventory.
451. Rachel, a new assistant controller, has been reviewing the intercompany transaction
worksheet elimination for her new company. This is the first time she has worked for a
company where intercompany inventory transactions have existed. She notices that this
subsidiary is engaged in inventory transactions with several other related companies. In
some instances the inventory sold internally is still all on the purchasers financial records
while in other instances part of the inventory has been sold to unrelated parties. Rachel
is confused about the elimination to the cost of good sold account. It seems that the
dollar amount of this adjustment differs depending on whether any of the inventory has
been sold externally or not. Prepare a short note explaining to Rachel the reason that the
cost of goods sold elimination changes as a result of sales made to unrelated parties.
Answer: The cost of goods sold adjustment is comprised of two components. One
component is the elimination of the intercompany sale. This part of the adjustment will
completely remove the cost of the inventory sold to a related party. The second part of
the adjustment is based on the inventory sold by the purchaser to an unrelated party. The
cost of goods, sold when the inventory is sold to an unrelated party, is based on the
intercompany transfer price. Given that this is not the inventory’s cost to the
consolidated entity, the cost of goods sold is misstated when the inventory is sold to an
unrelated party. The worksheet elimination must adjust the cost of good sold to result in
the consolidated cost of goods sold amount based on the inventory’s cost to the
consolidated entity.
452. Why is it important to distinguish between upstream and downstream sales in the
analysis of confirmed and unconfirmed intercompany profits?
Answer: It is important to determine the company where the profits have been recorded.
If the profits are on the subsidiary’s financial records, then the income to noncontrolling
interest must be adjusted.
453. Explain the difference between worksheet eliminations for an unrealized intercompany
profit made when the selling entity is a less than wholly owned subsidiary and those
made when the selling entity is a wholly owned subsidiary.
Answer: When the selling entity is less than wholly owned, there is a noncontrolling
interest in the entity. As a result, the income to noncontrolling interest in the period of
the sale, and possibly in subsequent periods, must be adjusted. If the selling entity is
wholly owned, there is no noncontrolling interest and therefore no adjustment to the
income to noncontrolling interest.
454. The audit partner has been discussing the inventory worksheet elimination with an
important client. Just before leaving, the partner states that the “unconfirmed profit must
be removed from the consolidated financial statements.” The client looks to you for
clarification on the meaning of unconfirmed profit and asks, “When does the profit
become confirmed and what does that mean to my company?”
Answer: The profit becomes confirmed when the inventory is sold to an unrelated party.
The profit is deferred until the inventory is sold to an independent party.
455. You are the controller for a large manufacturing company. One division manager has
come to you with a concern. Certain expenses are allocated to the division based on the
division’s contribution to consolidated gross profit. The manager notices that the cost of
goods sold assigned to his division is not the same as the cost of goods sold determined
by the divisional controller. Explain why the corporate controller may change the cost of
goods sold value.
Answer: The divisional controller is unaware of the division’s intercompany transactions.

Cost of goods sold on the consolidated income statement must represent the cost to the
original owner, not the cost to the ultimate sales division. The cost to the original owner
represents the amount of resources expended by the consolidated entity to bring the asset
to the consolidated entity.
456. A board of directors member was reviewing the consolidation worksheet immediately
before a board meeting. During the board meeting this member asked if she could get a
clarification on a technical matter. She states that she understands why sales and cost of
goods sold are restated as a result of intercompany transactions but she does not
understand why inventory is also part of the restatement. Prepare a brief note explaining
why inventory must be restated due to intercompany transactions.
Answer: When inventory is sold to a related party, the inventory’s cost basis changes
from the original owner’s historical cost to the new owner’s historical cost. The new
owner’s historical cost includes the profit recognized by the original owner as a result of
the intercompany transaction. The consolidation process must remove the gross profit
from the inventory that was recognized by the original owner. As a result, inventory is
revalued as part of the worksheet eliminations to remove intercompany transactions.
457. We recently informed a client that the consolidation process includes worksheet
eliminations to remove intercompany interest expense and revenue from a bond
transaction. The client is concerned that interest revenue and interest expense are not the
same dollar amounts even though the parent now owns 100 percent of the bond issued by
the subsidiary. Explain to the manager why this difference exists and the amount to
which these differences will sum over the life of the bond.
Answer: Interest revenue and interest expense will be equal only if the bond is acquired
for the bond’s book value on the issuer’s financial records. The amount that the purchase
price differs from the bond’s book value at the acquisition date is the gain or loss on early
retirement of debt. This is also the amount that the interest revenue and interest expense
will differ over the remaining life of the bond.
458. In regard to unconfirmed profit on an intercompany sale of a depreciable asset, the effect
of the worksheet elimination is to initially defer the profit recorded by the selling entity
and to recognize it over the remaining life of the asset. Compare these results with those
produced by the worksheet eliminations related to intercompany bond holdings.
Answer: When an intercompany bond transaction occurs, the gain or loss on the early
retirement of debt is recognized immediately even though neither entity recognized the
gain or loss. The recognition occurs because a transaction with an unrelated party
(investor) did occur whereas with an intercompany sale of plant assets, an unrelated party
is not involved. The gain or loss on the sale of a plant asset is recognized over the asset’s
life through an adjustment to depreciation expense. In contrast, when there is an
intercompany debt transaction, the difference between the interest expense and interest
revenue on the separate entities’ financial records results in the gradual recognition of the
income statement effect place on the consolidated income statement at the transaction
date.
459. Sam Reynolds works in the controller’s office. He has substantial experience eliminating
intercompany asset transactions but is not familiar with intercompany debt transactions.
As a result, he is confused when he reviews the elimination of an indirect intercompany
debt transaction that occurred this year. Sam asks why the loss on early retirement of
debt is debited in the worksheet elimination. In the past he has always credited losses as
part of the worksheet elimination to remove the item.
Answer: Intercompany asset transactions are recognized on both entities’ financial

records but do not exist for consolidated purposes. As a result, losses are credited to
remove them from the consolidated income statement. An indirect intercompany debt
transaction is a recognized transaction because it involves an unrelated party. The issue
that must be addressed is that it is a retirement of debt from the consolidated entity’s
perspective while it is an outstanding debt and an investment from the perspective of the
individual entities. Neither party has recognized the retirement. As a result, the loss
must be created rather than eliminated.
460. Jim, a new manger in the controller department is not familiar with indirect
intercompany bond transactions. He has asked for an explanation why the consolidated
entity is recognizing a loss on early debt retirement when the bond is still on the issuer’s
books. Prepare a response to Jim’s question.
Answer: The bond is still on the issuer’s books but it has been retired from the
consolidated entity’s perspective. The acquirer of the bond recorded an investment at the
acquisition date while the issuer of the debt still disclosed a liability. From the
consolidated entity’s perspective, the bond has been retired because a member of the
consolidated entity acquired it. This is a case where the transaction results in the
recognition of a gain or loss on the consolidated income statement even thought there is
no income statement disclosure on the books of either entity involved in the transaction.

Intercompany Transactions: Summary of Items by Topic

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Intercompany Transactions: Summary of Items by Topic

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CHAPTER 4

2. An intercompany transaction must involve the parent and a subsidiary.

3. An intercompany transaction flowing from the parent to the subsidiary is called a

4. An intercompany transaction flowing from one subsidiary to another subsidiary is called

5. An intercompany transaction flowing from the subsidiary to the parent is called a

19. A worksheet elimination is not required when an intercompany inventory transaction

23. In the period of an intercompany inventory transaction, a maximum of three accounts

25. All types of intercompany debt transactions involve an unrelated party.

29. The worksheet elimination pertaining to an indirect intercompany debt transaction

True-False Statement Solutions

Conceptual Multiple Choice Questions

Conceptual Multiple Choice Question Difficulty and Solutions

Computational Multiple Choice Questions

116. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

117. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

118. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

119. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

120. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

121. National Corporation acquires $150,000 of Regional’s (parent) 7 percent outstanding

144. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

145. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

146. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

147. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

148. Schmidt Corporation acquires $500,000 of Peterson’s (parent) 9 percent outstanding

161. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

162. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

163. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

164. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

165. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

166. Townsend is a 60 percent subsidiary of Caldwell. On December 31, 2005, Townsend

167. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

168. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

169. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

170. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

171. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

172. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

173. Gilbert is a 90 percent subsidiary of Ferrante. On September 1, 2005, Gilbert sells

188. Fairfield is an 80 percent subsidiary of Patterson. Patterson acquired equipment from

189. Fairfield is an 80 percent subsidiary of Patterson. Patterson acquired equipment from

190. Fairfield is an 80 percent subsidiary of Patterson. Patterson acquired equipment from

191. Fairfield is an 80 percent subsidiary of Patterson. Patterson acquired equipment from

192. Gibson Corporation is a 90 percent subsidiary of Kemsley Company. Gibson sold a

193. Gibson Corporation is a 90 percent subsidiary of Kemsley Company. Gibson sold a

194. Gibson Corporation is a 90 percent subsidiary of Kemsley Company. Gibson sold a

195. Gibson Corporation is a 90 percent subsidiary of Kemsley Company. Gibson sold a

200. Runyan Company is a 70 percent subsidiary of Young Corporation. Runyan sells

201. Runyan Company is a 70 percent subsidiary of Young Corporation. Runyan sells

202. Runyan Company is a 70 percent subsidiary of Young Corporation. Runyan sells

203. Runyan Company is a 70 percent subsidiary of Young Corporation. Runyan sells

204. Krogstad Company is an 80 percent subsidiary of Carter Corporation. Krogstad sells

206. Krogstad Company is an 80 percent subsidiary of Carter Corporation. Krogstad sells

207. Krogstad Company is an 80 percent subsidiary of Carter Corporation. Krogstad sells

212. Tearney Company is a 60 percent subsidiary of Capone, Incorporated. Tearney sells

213. Tearney Company is a 60 percent subsidiary of Capone, Incorporated. Tearney sells

214. Tearney Company is a 60 percent subsidiary of Capone, Incorporated. Tearney sells

215. Tearney Company is a 60 percent subsidiary of Capone, Incorporated. Tearney sells

220. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

221. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

222. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

224. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

225. Wendell Company is an 80 percent subsidiary of King Corporation. Wendell sells

226. Brown Company is a 70 percent subsidiary of Denison Corporation. Brown sells