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QUIZ 3 – INTERCOMPANY TRANSACTIONS PART ONE – Multiple Choice Select the one best answer to each item, and circle the appropriate letter. 1.Included in a working elimination (in journal entry format) for intercompany sales of merchandise was a debit to Retained Earnings of Subsidiary. This debit indicates that a.the parent company sold merchandise to a partially owned subsidiary b.a wholly owned subsidiary sold merchandise to a partially owned subsidiary c.a partially owned subsidiary sold merchandise to the parent or to another subsidiary d.the parent company sold merchandise to a wholly owned subsidiary. 2.Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 2016, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 3.Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 8%, 10-year bonds sold to yield 7%. On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate. How should this event be reflected in the current year's consolidated statements? a. The bonds remain in the balance sheet and are accounted for at a 7% effective rate. b. The bonds remain in the balance sheet and are accounted for at a 9% effective rate. c. Retirement of the bonds at a gain as of the purchase date. d. Retirement of
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