The Following Information Has Been Taken from the Consolidation Worksheet

question 54

Multiple Choice

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company.
(1) ) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2) ) Non-controlling interest in Stage's net income was $30,000.
(3) ) Graham paid dividends of $15,000.
(4) ) Stage paid dividends of $10,000.
(5) ) Excess acquisition-date fair value over book value was expensed by $6,000.
(6) ) Consolidated accounts receivable decreased by $8,000.
(7) ) Consolidated accounts payable decreased by $7,000.
Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

• A) $7,000 increase to net income as an operating activity.
• B) $7,000 decrease to net income as an operating activity.
• C) $5,600 increase to net income as an operating activity.
• D) $5,600 decrease to net income as an operating activity.
• E) $7,000 increase as a financing activity.

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Definitions:

Gross Method

An accounting method for recording purchases at the total invoice cost without deducting any cash discounts at the time of purchase.

Perpetual Inventory System

An accounting method that continuously updates the quantity and cost of inventory as purchases and sales are made.

Merchandise

Products or goods that are bought, sold, or traded within the retail or wholesale market.

Inventory Shrinkage

The loss of products between purchase from supplier and sale to customer, often due to theft, damage, or errors.