The Following Accounts Were Noted in Reviewing the Trial Balance

question 13

Multiple Choice

The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.:
Assets under Construction
Contracts Receivable
Billings on Construction in Progress
Earned Income on Long-Term Contracts
Contracts Payable
If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements?

• A)Assets under Construction; Billings on Construction in Progress; Earned Income on Long-Term Contracts
• B)Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts
• C)Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable
• D)Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable

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Definitions:

Residual Income

A performance measure for investment centers that subtracts the opportunity cost of the investment from the income generated by the assets of the investment.

Senior Management

High-level executives responsible for the overall management and effectiveness of an organization.

Inventory Levels

The quantity of goods and materials on hand at any given time in a company.