Elimination of unrealized profit on intercompany sales of inventory

1. Intercompany profit elimination entries in consolidation workpapers are prepared in order to:
a. Nullify the effect of intercompany transactions on consolidated statements
b. Defer intercompany profit until realized
c. Allocate unrealized profits between controlling and noncontrolling interests
d. Reduce consolidated income
2. The direction of intercompany sales (upstream or downstream) does not affect consolidation workpaper procedures when the intercompany sales between affiliates are made:
a. At fair value
b. Above market value
c. At book value
d. To a 100 percent-owned subsidiary
3. Pet Corporation sells inventory items for $500,000 to Sen Corporation, its 80 percent-owned subsidiary. The consolidated workpaper entry to eliminate the effect of this intercompany sale will include a debit to sales for:
a. $500,000
b. $400,000
c. The amount remaining in Sen’s ending inventory
d. 80 percent of the amount remaining in Sen’s ending inventory
4. Sar Corporation,
a 90 percent-owned subsidiary of Pan Corporation, buys half of its raw materials from Pan. The transfer price is exactly the same price as Sar pays to buy identical raw materials from outside suppliers and the same price as Pan sells the materials to unrelated customers. In preparing consolidated statements for Pan Corporation and Subsidiary:
a. The intercompany transactions can be ignored because the transfer price represents arm’s-length bargaining
b. Any unrealized profit from intercompany sales remaining in Pan’s ending inventory must be offset against the unrealized profit in Pan’s beginning inventory
c. Any unrealized profit on the intercompany transactions in Sar’s ending inventory is eliminated in its entirety
d. Only 90 percent of any unrealized profit on the intercompany transactions in Sar’s ending inventory is eliminated
5. Pit Corporation
sells an inventory item to its subsidiary, Sin Company, to be used as a plant asset by Sin. The workpaper entry to eliminate intercompany profits in the year of sale will not include:
a. A debit to sales
b. A credit to cost of sales
c. A credit to inventories
d. A credit to plant assets
6. Sel Corporation regularly sells inventory items to its parent, Pul Corporation. In preparing the consolidated income statement, which of the following items would not be affected by the direction (upstream or downstream) of these intercompany sales?