Reference no: EM132630704

Problem 1: Intercompany profits in inventory and land are realized through the eventual sale to outsiders, whereas depreciable assets are considered realized though consumption. What is realization through consumption?

A. By decreasing depreciation expense, we increase income and thus realize the unrealized gain.

B. By increasing depreciation expense, we decrease the cost of the asset to its original cost.

C. By increasing the asset, we realize the gain because the asset is worth more than it was originally.

D. By decreasing depreciation expense, we increase cost of goods sold realized profits on upstream transactions.

Problem 2: Revenue is recognized when it is earned in a transaction with an outsider in accordance with the

A. going concern principle.

B. matching principle.

C. historical cost principle.

D. revenue recognition principle.

Problem 3: If an affiliate purchases bonds in the open market, the intercompany bond liability carrying amount is

A. par value.

B. the par value of the bonds less the discount or plus the premium and issuance costs at the time of issuance.

C. always assigned to the parent company because it has control.

D. the par value of the bonds plus unamortized discount.