[Topic 4] Chapter 4 Quiz

Question 1

Intercompany profits in both the beginning and the ending inventories of the purchasing affiliate are unrealized at the end of the accounting period.

Answer 1

FALSE

Question 2

Intercompany profits or losses in inventories resulting from sales of merchandise by a partially owned subsidiary need not be considered in the computation of minority interest in the net income of the subsidiary.

Answer 2

FALSE

Question 3

If a parent company has a partially owned subsidiary, there is no effect on the non-controlling interest in the net assets of the subsidiary if the subsidiary sells the plant asset to the parent at a gain.

Answer 3

FALSE

Question 4

Intercompany sales of merchandise by a parent company to a subsidiary are similar to the intracompany shipments of merchandise by a home office to a branch.

Answer 4

TRUE

Question 5

Includes only the cost to the affiliated group, of goods that have been sold to parties outside the affiliated group.

Answer 5

CONSOLIDATED COST OF SALES

Question 6

Failure to eliminate the intercompany sales would show the gross profit percentage at ______

Answer 6

UNDERSTATED

Question 7

The proforma entry to eliminate intercompany sales and purchases if perpetual inventory system is used include a _____________ to cost of sales.

Answer 7

CREDIT

Question 8

In the preparation of cost of sales-income statement, the account Ending Inventory-Income Statement has a normal _______ balance.

Answer 8

CREDIT

Question 9

Under the equity method, the proforma entry to eliminate the realized profit in beginning inventory includes a debit to ______________.

Answer 9

INVESTMENT IN SUBSIDIARY

Question 10

Refers to profit (loss) that has not been realized from the point of view of the consolidated entity which must be eliminated in the preparation of consolidated financial statements.

Answer 10

UNREALIZED INTERCOMPANY PROFIT (LOSS)

Question 11

Refers to sales from one subsidiary to another subsidiary.

Answer 11

HORIZONTAL SALES

Question 12

Refers to sales from a parent company to one or more of its subsidiaries.

Answer 12

DOWNSTREAM SALES

Question 13

Refers to sales from subsidiaries to the parent company.

Answer 13

UPSTREAM SALES

Question 14

Failure to eliminate the intercompany sales would show consolidated net income at _____

Answer 14

UNDERSTATED

Question 15

If a subsidiary sells merchandise to the parent company at a markup above subsidiary cost, the Cost of Goods Sold ledger account of the subsidiary is not affected by working paper eliminations.

Answer 15

TRUE

Question 16

If a parent company sells merchandise to a subsidiary at parent company cost, the inventories and cost of goods sold of the subsidiary are not affected by working paper eliminations.

Answer 16

TRUE