Reference no: EM132868556

Questions -

Q1) A parent owns 80% of the voting stock of its subsidiary. The subsidiary has a $30,000 loan obtained from its parent in a previous year. The parent charges interest on the loan at a 3% annual rate, and interest is paid on June 1 and December 1 of each year.

How does this intercompany affect the parent's equity in income for the year, assuming the parent uses the complete equity method to report its investment on its own books?

A. $720 is deducted

B. $60 is deducted

C. No effect

D. $720 is added

Q2) A parent owns 80% of its subsidiary's voting stock. At the end of the year, the subsidiary's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the parent. The parent's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the subsidiary.

What is the effect of the above information on equity in net income for the year, reported on the parent's books, assuming the parent uses the complete equity method to account for its investment?

A. Decrease of $26,000

B. Increase of $35,200

C. Decrease of $20,800

D. Decrease of $22,000

Q3) A parent owns 80% of its subsidiary. At the beginning of 2019, the subsidiary sells equipment carried on its books at $40,000 to its parent for $50,000. The equipment has a 5-year remaining life, straight-line.

What is the effect of the above on the noncontrolling interest in net income, reported on the consolidated income statement for 2020?

A. $400 increase

B. No effect

C. $1,200 decrease

D. $800 increase

Q4) A parent's ending inventory contains $60,000 in unconfirmed profits on goods purchased from its subsidiary. The subsidiary's ending inventory contains $100,000 in unconfirmed profits on goods purchased from its parent. The parent owns 80% of the subsidiary.

By what amount is consolidated income to the noncontrolling interest reduced by the adjustment for unconfirmed profits on ending inventories?

A. $20,000

B. $32,000

C. $12,000

D. $8,000