Prepare Consolidated Financial Statements Practice Test

Pine Corp. owns 90% of Spruce LLC and consolidates Spruce under ASC 810. Spruce sold equipment to Pine on March 31, Year 1 for $150,000; Spruce’s carrying amount was $120,000 and the equipment had a remaining useful life of 5 years at the sale date (straight-line, no salvage). Pine depreciates the equipment on its books based on the $150,000 purchase price over the remaining 5 years. At December 31, Year 1, what is the correct consolidation adjustment to eliminate the effects of this upstream intercompany fixed-asset sale (ignoring income taxes)?

During Year 1, ParentCo owns 100% of SubsidiaryCo and consolidates under ASC 810. SubsidiaryCo sold inventory to ParentCo for $300,000 at a gross profit rate of 25% on sales; ParentCo had not sold 40% of these goods to external customers by year-end. ParentCo’s separate books include the $300,000 purchase in cost of goods sold as the goods were sold/unsold in the normal course, and ending inventory includes the unsold portion at the intercompany transfer price. What is the correct consolidation elimination journal entry at year-end to eliminate the unrealized profit in ending inventory (ignoring income taxes)?