4Power Inc owns 80 of Station Co and applies the equity meth

4)Power Inc. owns 80% of Station Co. and applies the equity method. During the current year, Power bought inventory costing $60,000 and then sold it to Station for $100,000. At year-end, only $24,000 of merchandise was still being held by Station. What entries should Power use to record the amount of intra-entity inventory profit deferred at year-end? (Hint: For an intra-entity transaction, in the year when the inter-entity transferred merchandise is not sold to a third-party or is not consumed then the parent company will defer the unearned gross profit. This question is about a downstream sale from the parent company Power to its subsidiary Station. In a downstream sale, ALL unearned gross profit must be deferred by the parent company at this year-end.)
A. Dr. Equity in Station’s net income.
B. Cr. Equity in Station’s net income.
C. Dr. Gross Profit.
D. Dr. Cost of Goods Sold.
E. Cr. Cost of Goods Sold.

5)On January 1, 2017, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.\'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2017 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2017?
A. $2,040,500.
B. $2,071,500.
C. $2,260,500.
D. $2,171,500.
E. $2,120,500.

6)

On May 1, 2017, Pepper Company issues 30,000 shares of its $12 par value ($25 fair value) common stock in exchange for all of the shares of Salt\'s common stock. Pepper paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Pepper has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.

What will be Pepper\'s balance in its common stock account as a result of this acquisition?

A. $360,000.

B. $700,000.

C. $1,050,000.
D. $1,060,000.
E. $1,450,000.

Solution

Answer: B. Cr. Equity in Station’s net income.

Because they purchased 60000 inventory and then sold to 100000.