ADVANCED ACCOUNTING
13th Edition
ISBN: 9781264046263
Author: Hoyle
Publisher: MCG
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Textbook Question
Chapter 1, Problem 10P
Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2018, Perez sold goods with a 40 percent gross profit to Senior, which sold all of these goods in 2018. How should Perez report the effect of the intra-entity sale on its 2018 income statement?
a. Sales and cost of goods sold should be reduced by the amount of intra-entity sales.
b. Sales and cost of goods sold should be reduced by 25 percent of the amount of intra-entity sales.
c. Investment income should be reduced by 25 percent of the gross profit on the amount of intra-entity sales.
d. No adjustment is necessary.
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Ques. Assume that a firm has the following data for the year ended 12/31/2019:
Sales: $300
Depreciation expense: $20
Interest expense: $40
Tax expense: $40
Net worth: $150
In addition, the company's net worth in 2018 was $150.
Assume that in 2020, sales, cost of goods sold, and S, G, & A expenses remain the same, depreciation expense
increases, interest expense increases, and tax expense decreases.
Which of the following statements is true?
1. Gross margin will decrease.
II. Operating margin will decrease.
III. Net income will increase.
IV. Return on beginning equity will increase.
• I only
•
I and II only
I, II and III only
I, II, III, and IV
The pretax financial income (or loss) figures for Jenny Spangler Company are as follows.
2015
$160,000
2016
250,000
2017
80,000
2018
(160,000
)
2019
(380,000
)
2020
120,000
2021
100,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 25% tax rate for 2015 and 2016 and a 20% tax rate for the remaining years.Prepare the journal entries for the years 2017 to 2021 to record income tax expense and the effects of the net operating loss carryforwards. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)
Below are the Statements of Comprehensive Income of Riego and Mercadejas Companies for
2020. Riego Company's Statement of Comprehensive Income was prepared before it
reported its share of Mercadejas Company's income. Riego Company uses the equity method.
Mercadejas Co.
Riego Co.
800,000
320,000
480,000
380,000
100,000
Sales
Cost of sales
Gross profit
Operating Expenses
Net Income
Inventories, 1/1/20:
Purchased from outsiders
Purchased intercompany
Inventories, 12/31/20:
Purchased from outsiders
Purchased intercompany
200,000
90,000
110,000
60,000
50,000
15,000
20,000
10,000
25,000
5,000
5,000
The gross profit rate, as a percentage of sales, has been stable for several years and 60% of
Mercadejas Company's sales are to Riego Company. 75% of Mercadejas Company's was
acquired by Riego Company some time ago at book value. Mercadejas Company's equity at
December 31, 2020 consisted of P20,000 of capital stock and P60,000 of retained earnings.
REQUIRED:
Compute the amount of the following in…
Chapter 1 Solutions
ADVANCED ACCOUNTING
Ch. 1 - A company acquires a rather large investment in...Ch. 1 - What accounting treatments are appropriate for...Ch. 1 - Prob. 3QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 5QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 7QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 9QCh. 1 - Prob. 10Q
Ch. 1 - Prob. 11QCh. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 13QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 15QCh. 1 - Prob. 16QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Which of the following does not indicate an...Ch. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - In January 2017, Domingo, Inc., acquired 20...Ch. 1 - Prob. 8PCh. 1 - Evan Company reports net income of 140,000 each...Ch. 1 - Perez, Inc., applies the equity method for its 25...Ch. 1 - Prob. 11PCh. 1 - Alex, Inc., buys 40 percent of Steinbart Company...Ch. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - On January 1, 2017, Alison, Inc., paid 60,000 for...Ch. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Echo, Inc., purchased 10 percent of ProForm...Ch. 1 - Prob. 23PCh. 1 - Prob. 24PCh. 1 - Prob. 25PCh. 1 - Prob. 26PCh. 1 - Belden, Inc. acquires 30 percent of the...Ch. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - On July 1, 2016, Killearn Company acquired 88,000...Ch. 1 - Prob. 31PCh. 1 - On January 1, 2017, Stream Company acquired 30...Ch. 1 - EXCEL CASE 1 On January 1, 2018, Acme Co. is...Ch. 1 - Access The Coca-Cola Companys SEC 10-K filing at...Ch. 1 - Prob. 4DYSCh. 1 - Prob. 5DYS
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