Question

In: Accounting

1. When cost of sales is increased, income __________ and income tax expense should __________. decreases;...

1. When cost of sales is increased, income __________ and income tax expense should __________.

  • decreases; increase

  • decreases; decrease

  • increases; increase

  • increases; decrease

2. The eliminations on the consolidated income statement for unrealized profit in ending inventory and the related adjustment to income tax expense are the same regardless of whether it is the parent or the subsidiary who is the selling company.

True

False

Solutions

Expert Solution

1. When cost of sales is increased, income __________ and income tax expense should __________.

Answer

Income is increase and income tax expense increase

Explanation :

Cost of goods sold as a percent of sales increased. Selling expenses increased. Net income increased. Income tax expense increased.

2. The eliminations on the consolidated income statement for unrealized profit in ending inventory and the related adjustment to income tax expense are the same regardless of whether it is the parent or the subsidiary who is the selling company.

Answer

False

Explanation :

The eliminations on the consolidated income statement for unrealized profit in ending inventory and the related adjustment to income tax expense are the not same regardless of whether it is the parent or the subsidiary who is the selling company.

Interest income recorded by the subsidiary and interest expense recorded by the parent should be equal in the direct replacement case. When the subsidiary purchases parent company bonds from a nonaffiliated, interest income and interest expense will not be the same unless the bonds are purchased from the nonaffiliated at an amount equal to the liability reported by the parent.

ekkarill92 answered 2 years ago
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