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Reading 21:Intercorporate Investments LOS b ~ Q35-36

Q35. Company X owns 40% of company S and currently accounts for the investment using the equity method. Below are the 2002

     balance sheets and income statements for companies X and S, in thousands of dollars.

Company

S

X

 

 

 

Sales

200

1,000

Cost of goods sold (COGS)

140

700

Operating expenses

20

100

Income from investment in S

0

12

Earnings before taxes (EBT)

40

188

Taxes

10

47

Net income

30

141

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Cash

10

50

Accounts receivable

20

100

Inventories

20

100

Other current assets

20

100

Property, plant, and equip.

130

610

Investment in S

0

40

Total assets

200

1,000

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< >>

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Liabilities

100

500

Stockholders’ equity

100

500

Company X purchases 25% of the output of company S, and $4,000 of the receivables of company S are from company X. If the investment is treated using the proportionate consolidation method, the COGS for company X will be:

A)   $742,000.

B)   $736,000.

C)   $756,000.

Q36. Company X owns 40% of company S and currently accounts for the investment using the equity method. Below

     are the 2002 balance sheets and income statements for companies X and S, in thousands of dollars.

Company

S

X

 

 

 

Sales

200

1,000

Cost of goods sold (COGS)

140

700

Operating expenses

20

100

Income from investment in S

0

12

Earnings before taxes

40

188

Taxes

10

47

Net income

30

141

 

 

 

Cash

10

50

Accounts receivable

20

100

Inventories

20

100

Other current assets

20

100

Property, plant, and equip.

130

610

Investment in S

0

40

Total assets

200

1,000

 

 

 

Liabilities

100

500

Stockholders’ equity

100

500

Company X purchases 25% of the output of company S, and $4,000 of the receivables of company S are from company X. If the investment is treated using the proportionate consolidation method, the accounts receivable for company X will be:

A)   $108,000.

B)   $106,400.

C)   $116,000.

答案和详解如下:

Q35. Correct answer is B)

COGS will be increased by the proportionate share of the COGS of company S, less the proportionate share of sales of S made to company X, which means COGS is equal to 700,000 + (0.4 × 140,000) − (0.4 × 0.25 × 200,000) = 736,000.

Q36. Correct answer is B)

The receivables will be increased by the proportionate share of the receivables of company S that are not from company X, which means receivables will be 100,000 + 0.4 × (20,000 − 4,000) = 106,400.

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