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  E7-2 Multiple-Choice Questions on the Effects of Inventory Transfers [AICPA Adapted]
Select the correct answer for each of the following questions.
1. During 20X3, Park Corporation recorded sales of inventory costing $500,000 to Small Company, its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31, 20X3, Small held one-fifth of these goods in its inventory. The following information pertains to Park and
Small’s sales for 20X3:
Park Small
Sales $2,000,000 $1,400,000
Cost of Sales 800,000 700,000
Gross Profit $1,200,000 $ 700,000
In its 20X3 consolidated income statement, what amount should Park report as cost of sales?
a. $1,000,000.
b. $1,060,000.
c. $1,260,000.
d. $1,500,000.
Items 2 through 6 are based on the following: Selected information from the separate and consolidated balance sheets and income statements of Pard Inc. and its subsidiary, Spin Company, as of December 31, 20X8, and for the year then ended is as follows:
Pard Spin Consolidated
Balance Sheet Accounts
Accounts Receivable $ 26,000 $ 19,000 $ 39,000
Inventory 30,000 25,000 52,000
Investment in Spin 67,000 — —
Patents — — 30,000
Minority Interest — — 10,000
Stockholders’ Equity 154,000 50,000 154,000
Income Statement Accounts
Revenues $200,000 $140,000 $308,000
Cost of Goods Sold 150,000 110,000 231,000
Gross Profit $ 50,000 $ 30,000 $ 77,000
Equity in Earnings of Spin 11,000 — —
Amortization of Patents — — 2,000
Net Income 36,000 20,000 40,000
Additional information
• During 20X8, Pard sold goods to Spin at the same markup on cost that Pard uses for all sales. At December 31, 20X8, Spin had not paid for all of these goods and still held 37.5 percent of them in inventory.
• Pard acquired its interest in Spin on January 2, 20X5. Pard’s policy is to amortize patents by the straight-line method.
2. What was the amount of intercompany sales from Pard to Spin during 20X8?
a. $3,000.
b. $6,000.
c. $29,000.
d. $32,000.
3. At December 31, 20X8, what was the amount of Spin’s payable to Pard for intercompany sales?
a. $3,000.
b. $6,000.
c. $29,000.
d. $32,000.
4. In Pard’s consolidated balance sheet, what was the carrying amount of the inventory that Spin purchased from Pard?
a. $3,000.
b. $6,000.
c. $9,000.
d. $12,000.
5. What is the percent of minority interest ownership of Spin?
a. 10 percent.
b. 20 percent.
c. 25 percent.
d. 45 percent.
6. Over how many years has Pard chosen to amortize patents?
a. 15 years.
b. 19 years.
c. 23 years.
d. 40 years.