Reference no: EM132602239

The Parent has 70% interest in Bill Inc. The separate-entity R/E statements of the two companies as of Dec 31, 2019 are below:

At the beginning of 2019, the accounting books of the Parent suggest the followings associated with the inventories the Parent purchased from Bill during 2018:

Before-tax profit Tax expense After-tax profit $6,000 $2,400 $3,600

Question 1: Assuming the Parent uses cost method for equity investments, adjustments based on the given information will show an impact on the Parent's portion in the consolidated net income of

                                                     Parent                                 Bill

Beginning                               $100,000                   $30,000

Net income                                10,000                      3,000

Dividends declared                         2,000                       0

Year-end                                    108,000                  33,000

a) $3,600 increase

b) $4,620 increase

c) $6,000increase

d) $2,520 increase

Question 2: With respect to a foreign investee that has been classified as a self-sustaining Sub, the gain or loss from translating the Sub's acquisition differentials should be reported in

A. Net income of the translated income statement

B. OCI of the translated balance sheet

C. Net income of the consolidated income statement

D. OCI of the consolidated balance sheet

Question 3: The Parent has an 70% interest in the Sub. On Jan.1, 20X1, the Sub sold a piece of land to the Parent for $280,000, and recognized a gain of $60,000. On that day, it also sold a piece of land to an unrelated party for $300,000 and recognized a gain of $80,000. On July 1, 20X1, the Parent sold a piece of land it purchased a few years ago from an unrelated company to the Sub for $200,000 and recognized a gain of $20,000. Both companies pay income tax at the rate of 40%. Assuming gains from sales of land are fully taxable, and the Parent uses the cost method for its equity investments. ?What is the net impact of these land transactions on the Parent's portion in consolidated ? net income?

A. $33,600 increase

B. $8,400 increase

C. $3,600 decrease

D. $12,000 decrease

Question 4: Which of the following statements is NOT true?

a. On the day a joint venture is established, the difference between FV and BV of the ?asset contributed can be fully recognized as unrealized gains or losses.

b. On the day a joint venture is established, the difference between FV and BV of the ?asset contributed can be partially recognized as unrealized gains or losses.

c. On the day a joint operation is established, the difference between FV and BV of the ?asset contributed can be fully recognized as realized gains or losses.

d. On the day a joint operation is established, the difference between FV and BV of the ?asset contributed can be partially recognized as realized gains or losses.

Question 5: The Parent held 90% of the Sub's 10,000 outstanding voting shares right before July 1, 20X1. On July 1, 20X1, the Sub issued additional 2,000 voting shares for $80,000 and the Parent did not buy any of them. Right before this event, the Parent had a balance of $400,000 in its investment account for this Sub under the equity method. Which of the following statements is true?

a. The effect of this event on the Parent is a net loss of $6,680.

b. The effect of this event on the Parent is a net gain of $6,680.

c. The effect of this event on the Parent is zero

d. None of above