1. Assume that a parent company has sold goods to its subsidiary. A portion of the inventory sold by the parent company to the subsidiary is resold in the next financial period to unaffiliated customers. Which of the following is the consolidation entry to recognize previously deferred profits? Debit Investment in Subsidiary; Credit Cost of Goods Sold 2. Which of the following unrealized components must be removed from the inventory so that the inventory is reported at its original cost to the consolidated entity? (select all that apply) Markup on cost Losses Profits 3. Synergy Consultancy Inc. purchased land from an independent third party for $30,000 on January 1, 20X3. Synergy sold this land to its subsidiary, Viva Consulting Inc., for $40,000 on September 1, 20X3. Also during 20X3, Viva Consulting sold the land to a nonaffiliate for $50,000. Calculate the amount of profit the consolidated entity would record from this transaction. Gain reported by the consolidated entity = Sale price of land - Original cost of land = $50,000 - $30,000 = $20,000. 4. Tracker Manufacturing Inc. purchased land on January 1, 20X1 by paying $100,000 to a nonaffiliate. It transferred the land to Plethora Products Inc., a subsidiary, for $125,000 on July 1, 20X1. Plethora Products sells the land to a nonaffiliate on December 31, 20X3, for $150,000. Which of the following is true of the profit on the sale of land to be recognized in the consolidated financial statements and in Plethora Products books as of December 31, 20X3? (select all that apply) The consolidated financial statements would recognize a gain of $50,000. Plethora Products would recognize a gain of $25,000.
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