Jerry J. Weygandt, Ph.D., CPA, is Arthur Andersen Alumni Emeritus Professor of Accounting at the University of Wisconsin-Madison. He holds a Ph.D. in accounting from the University of Illinois. Articles by Weygandt have appeared in the Accounting Review, Journal of Accounting Research, Accounting Horizons, Journal of Accountancy, and other academic and professional journals. These articles have examined such financial reporting issues as accounting for price-level adjustments, pensions, convertible securities, stock option contracts, and interim reports. Weygandt is the author of other accounting and financial reporting books and is a member of the American Accounting Association, the American Institute of Certified Public Accountants, and the Wisconsin Society of Certified Public Accountants. He has served on numerous committees of the American Accounting Association, as a member of the editorial board of the Accounting Review, and as president and secretary-treasurer of the American Accounting Association. In addition, he has been actively involved with the American Institute of Certified Public Accountants and has been a member of the Accounting Standards Executive Committee (AcSEC). He has served on the FASB task force that examined reporting issues related to accounting for income taxes, and served as a trustee of the Financial Accounting Foundation. Weygandt has received the Chancellor’s Award for Excellence in Teaching and the Beta Gamma Sigma Dean’s Teaching Award. He is the recipient of the Wisconsin Institute of CPA’s Outstanding Educator’s Award and the Lifetime Achievement Award. In 2001 he received the American Accounting Association’s Outstanding Educator Award.
FINANCIAL ACCOUNTING 3 CONSOLIDATIONS PART 3: INTRAGROUP INVENTORY REASSURANCE OF LEARNING TEST (INDIVIDUAL) VERSION B 1. AASB 10 Consolidation Financial Statements requires that intragroup transactions be: a. eliminated on consolidation to the extent of the parent’s interest in the subsidiary. b. eliminated in the books of the parent and subsidiary to the extent of the parent’s interest in the subsidiary c. eliminated in full in the books of the parent and subsidiary d. eliminated in full on consolidation 2. A subsidiary entity sold goods to its parent entity for $100 000. The inventory originally cost the subsidiary $125 000. At reporting date, the parent still held the entire inventory. Which of the following adjustments must be included as part of the consolidation entry to eliminate this transaction? a. Cr Inventory $100 000 b. Cr Inventory $125 000 c. Dr Inventory $25 000 d. Dr Inventory $225 000 3. A parent sold some inventory to its subsidiary for $55 000. The goods had originally cost the parent $40 000. At the end of the year the entire inventory was still on hand. The consolidation adjustment entry to eliminate this transaction will include the following line items? a. Cr Cost of sales $15 000 b. Cr Cost of sales $40 000 c. Cr Cost of sales $95 000 d. Cr Cost of sales $55 000 4. A subsidiary sold inventory to its parent for $100 000. The inventory had previously cost the subsidiary $80 000. At reporting date, the parent had sold 75% of the inventory to a party outside the group. The company tax rate is 30%. Which of the following are the adjustment entries in the consolidation worksheet at reporting date? a. Sales revenue Dr 100 000 Cost of sales Cr 80 000 Inventory Cr 20 000 Deferred tax asset Dr 6 000 Income tax expense Cr 6 000 b. Sales revenue Cost of sales Inventory Deferred tax asset Income tax expense Dr Cr Cr Dr Cr 100 000 c. Sales revenue Cost of sales Inventory Deferred tax asset Income tax expense Dr Cr Cr Dr Cr 80 000 95 000 5 000 1 500 1 500 60 000 20 000 6 000 6 000 FINANCIAL ACCOUNTING 3 CONSOLIDATIONS PART 4: INTRAGROUP NCA REASSURANCE OF LEARNING TEST (GROUP) VERSION A 1. Sky limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity, Dive Limited. The adjustment necessary on consolidation to reflect the tax effect if this transaction will result in a (n): a. decrease in deferred tax assets. b. Increase in deferred tax liabilities. c. Increase in deferred tax assets. d. increase in income tax expense 2. Abra Ltd sold an item of plant to its subsidiary Cadabra Ltd on 1 January 2017 for $68 000. The asset had cost Abra Ltd $84 000 when acquired on 1 January 2015. At that time the useful life of the plant was assessed at 6 years. Rounded to the nearest dollar, the consolidation elimination entries at 30 June 2017 in relation to the sale of plant are which of following? a. Accumulated depreciation Gain on sales Plant Deferred tax asset Income Tax Expense Accumulated depreciation Depreciation Expense Income tax expense Deferred tax asset Dr Dr Cr Dr Cr Dr Cr Dr Cr 8 000 8 000 b. Plant Gain on sales Accumulated depreciation Deferred tax asset Income Tax Expense Accumulated depreciation Depreciation Expense Income tax expense Deferred tax asset Dr Dr Cr Dr Cr Dr Cr Dr Cr 18 000 10 000 c. Accumulated depreciation Gain on sales Plant Deferred tax asset Income Tax Expense Accumulated depreciation Depreciation Expense Income tax expense Deferred tax asset Dr Dr Cr Dr Cr Dr Cr Dr Cr 14 000 2 000 d. Plant Gain on sales Accumulated depreciation Deferred tax asset Income Tax Expense Accumulated depreciation Depreciation Expense Income tax expense Deferred tax asset Dr Dr Cr Dr Cr Dr Cr Dr Cr 16 000 12 000 16 000 2 400 2 400 2 000 2 000 600 600 28 000 3 000 3 000 1 400 1 400 420 420 16 000 600 600 700 700 210 210 28 000 3 600 3 600 1 500 1 500 450 450 3. On 16 May 2014, Zebra Ltd sold equipment to its subsidiary Nando Ltd for $100 000, this asset having a carrying amount at time of sale of $80 000. The equipment was regarded by Zebra Ltd as a depreciation non-current asset, being depreciated at 10% p.a. on cost, whereas Nando Ltd records the machinery as inventory. The asset was sold by Nando Ltd before 30 June 2014. The worksheet entry for the year ended 30 June 2014 would include which of the following adjustments? a. Dr Cost of sales 20 000 b. Cr Cost of sales 20 000 c. Dr Inventory 20 000 d. Cr Inventory 20 000 4. Unite Ltd provided a loan of $1 000 000 to its subsidiary Inspire Ltd. Interest of $100 000 was charged during the year ended 30 June 2018. On consolidation, which of the following adjustments is needed at 30 June 2018 in relation to the interest charged? a. No adjustment needed b. Dr Interest revenue $100 000 Cr Interest expense $100 000 c. Dr Interest expense $100 000 Cr Interest revenue $100 000 d. Dr Retained earnings $100 000 Cr Cash $100 000 FINANCIAL ACCOUNTING 3 FOREIGN CURRENCY PART 1: TRANSACTIONS REASSURANCE OF LEARNING TEST (INDIVIDUAL) VERSION B 1. The Australian Financial News quoted A$1.00 equals US$1.052/1.08. What does this represent? a. A bid rate of US$1.05. b. An offer rate of A$1.08. c. A bid rate of A$1.08 d. An offer rate of US$1.05. 2. A decrease in the direct rate of US$1 to A$ from A$1.45 to A$1.40 results in: a. A decrease in US$ amount for a payable in A$. b. An increase in A$ amount for a payable in US$. c. An exchange loss. d. A decrease in A$ amount for receivable in US$. 3. A realised exchange difference arises: a. when the exchange rate changes between initial recognition and cash settlement. b. when the exchange rate changes between initial recognition and end of the reporting period. c. on re-measurement of a monetary liability at the end of the reporting period. d. on initial recognition of a monetary asset. 4. At the end of the reporting period, a foreign currency monetary item is re-measured using a. the foreign currency monetary value b. spot exchange rate c. Hong Kong dollars d. the closing rate Customer # 3 in Israel Date Account Titles and Explanation 31 Jul. 2016 Accounts receivable Debit Credit 1,600,000 Sales 1,600,000 (Sale NIS 1,600,000/1.0) 31 Oct. 2016 Accounts receivable 177,778 Foreign exchange gain 177,778 (Re-measurement of receivable NIS1,600,000/0.9 – NIS1,600,000/1.0) Cash 1,777,778 Accounts receivable 1,777,778 (Cash receipt NIS1,600,000/0.9) Customer # 6 in Dubai Date Account Titles and Explanation 30 Sept. 2016 Accounts receivable Debit Credit 2,763,158 Sales 2,763,158 (Sale AED10,500,000/3.8) 05 Feb. 2017 Foreign exchange loss 138,158 Accounts receivable 138,158 (Re-measurement of receivable AED10,500,000/4.0 – AED10,500,000/3.8) Cash Accounts receivable (Cash receipt AED10,500,000/4.0) 2,625,000 2,625,000 Customer # 4 in Turkey Date 31 Jan. 2017 Account Titles and Explanation Debit Accounts receivable Credit 972,973 Sales 972,973 (Sale TL9,000,000,000/9,250) 31 Mar.2017 Foreign exchange loss 94,924 Accounts receivable 94,924 (Re-measurement of receivable TL9,000,000,000/10,250 – TL9,000,000,000/9,250) 31 Mar. 2017 Cash 878,049 Accounts receivable 878,049 (Cash receipt TL9,000,000,000/10,250) Customer # 8 in Egypt Date Account Titles and Explanation Debit 31 Mar. 2017 Accounts receivable Credit 64,000 Sales 64,000 (Sale ED400,000,000/6,250) 30 Jun. 2017 Foreign exchange loss 6,857 Accounts receivable 6,857 (Re-measurement of receivable ED400,000,000/7,000 – ED400,000,000/6,250) 31 Jul. 2017 Foreign exchange loss 1,970 Accounts receivable 1,970 (Re-measurement of receivable ED400,000,000/7,250 – ED400,000,000/7,000) Cash 55,172 Accounts receivable 55,172 (Cash receipt ED400,000,000/7,250) Customer # 9 in United States Date 15 Apr. 2017 Account Titles and Explanation Accounts receivable Debit Credit 1,520,270 Sales 1,520,270 (Sale US1,125,000/0.74) 30 Jun. 2017 Foreign exchange loss 148,319 Accounts receivable 148,319 (Re-measurement of receivable US1,125,000/0.82 – US1,125,000/0.74) 31 Jul. 2017 Accounts receivable 34,299 Foreign exchange loss 34,299 ((Re-measurement of receivable US1,125,000/0.80 – US1,125,000/0.82) Cash Accounts receivable (Cash receipt US1,125,000/0.80) 1,406,250 1,406,250