True or False 1

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Intercompany Profit Transactions -...

True or False

.

1

The objective of eliminating intercompany profits and losses is so that the consolidated financial statements will appear as though these intercompany transactions never took place.

True

False

.

2 When a perpetual inventory system is used by both the parent and the subsidiary, the working paper elimination is a debit to Sales and a credit to

Purchases.

True

False

.

3 Consolidated net income is reduced by the working paper elimination for intercompany sales.

True

False

.

4 Unrealized gross profits in ending inventory are generally realized in the subsequent accounting period.

True

False

.

5

A sale from parent to subsidiary is a downstream sale.

True

False

.

6 If the subsidiary company has minority shareholders and downstream sales are made from the parent, the unrealized gross profit elimination must be adjusted for the minority interest.

True

False

.

7 Unrealized profits from upstream sales are allocated proportionately between consolidated net income and the minority interest in subsidiary net income.

True

False

.

8 If a sixty-percent owned subsidiary makes upstream sales to the parent, 60 percent of th e unrealized gross profits in the parent’s ending inventory will be deferred until realized for purposes of consolidated financial statements.

True

False

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