FUNDAMENTALS OF ADVANCED ACCOUNTING >I
6th Edition
ISBN: 9781307007350
Author: Hoyle
Publisher: MCG/CREATE
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Chapter 5, Problem 7Q
To determine
Explain the manner in which the consolidation process be affected if these transfers were downstream and the manner in which consolidated financial statements be affected if these transfers were upstream.
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Intra-entity transfers between the component companies of a business combination are quite common. Why do these intra-entity transactions occur so frequently?
When we are preparing consolidated financial statements, will the financial statements of the parent entity, or the subsidiary companies, as at the beginning of the financial period reflect prior consolidation adjustments? Why?
How does the consolidation process tend to disguise information needed to analyze the financial operations of a diversified organization?
Chapter 5 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
Ch. 5 - Prob. 1QCh. 5 - Prob. 2QCh. 5 - Prob. 3QCh. 5 - Prob. 4QCh. 5 - James, Inc., sells inventory to Matthews Company,...Ch. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 10Q
Ch. 5 - Prob. 11QCh. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Use the same information as in problem (5) except...Ch. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - What is the total of consolidated cost of goods...Ch. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - What is the consolidated total for inventory at...Ch. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 1DYSCh. 5 - Prob. 2DYS
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- Many companies transfer inventories from one subsidiary to another. Often the companies have integrated operations in which one subsidiary provides raw materials, another manufacture finished products, and another distributes and perhaps another sells the product at retail. Required: Discuss how intercompany transfers should be treated for consolidation purposes, in both the statement of financial position and the statement of comprehensive income.arrow_forwardAn entity shall determine whether a transaction or other event is a business combination by applying the definition in PFRS 3, which requires that: a. All of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination. b. All of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity. c. The assets acquired and the liabilities assumed constitute a business. d. All of the above.arrow_forwardChoose the correct. Which of the following is the best theoretical justification for consolidated financial statements?a. In form the companies are one entity; in substance they are separate.b. In form the companies are separate; in substance they are one entity.c. In form and substance the companies are one entity.d. In form and substance the companies are separate. (AICPA)arrow_forward
- This distinguishes a business combination from other types of investment transactions. Obtaining of control Acquisition of stocks Acquisition of assets All of these The entity that obtains control over another business in a business combination called the Controller Acquiree Acquirer Controllee Entity A obtained control of Entity B in a business combination. When computing for goodwill, Entity A would least likely account for which of the following? Entity B’s research and development projects that were already charged as expenses, but have a fair value as at the acquisition date. Entity B’s unrecorded identifiable intangible assets Operating lease between Entity A and Entity B, wherein Entity B is the lessee. Entity A’s expected costs of exiting or terminating some or all of Entity B’s activities after the combination. A contingent liability assumed in a business combination Is not accounted for by the acquirer if the contingent liability has an improbable outflow of economic…arrow_forwardIn Chapter 3 of our text, we learn about the concept of “control”, as it relates to consolidations. Specifically, control refers to the situation where a parent company owns a controlling financial interest in another company, whether that company is incorporated or not (such as a trust or partnership). Consolidation of entities that are not majority-owned is opposed by some companies, particularly biotechnology and pharmaceutical concerns, whose financial strength could be hurt by reporting consolidated financials. Accounting professionals have argued that some firms deliberately avoid consolidating results by owning less than 50% of the voting stock in an entity, even though they effectively control it by hiring and firing management. In what instances would a company want to consolidate an entity of which the company owns less than 50%? Discuss ways that a company can control another with less than majority ownership.arrow_forwardWhy do we need to pass the consolidation elimination entry every time we prepare a consolidated financial statementarrow_forward
- Which of the following situations best describes a business combination to be accounted for as a statutory merger? Select one: a. Two companies combine to form a new third company, and the original two companies are dissolved. b. One company transfers assets to another company it has created c. Both companies in a combination continue to operate as separate, but related, legal entities. d. Only one of the combining companies survives and the other loses its separate identityarrow_forwardWhich of the following is the best theoretical justification for consolidated financial statements?a. In form the companies are one entity; in substance they are separate.b. In form the companies are separate; in substance they are one entity.c. In form and substance the companies are one entity.d. In form and substance the companies are separate. (AICPA)arrow_forwardWhich of the following statements is not correct in relation to consolidation accounting key terms? Select one alternative: Consolidated financial statements are financial statements of a group of entities presented as if that group was acting as a single economic entity. A parent is an entity that has more than one subsidiary. A subsidiary is an entity that is controlled by another entity. A group comprises a parent and all of its subsidiaries.arrow_forward
- Demonstrate the consolidation process when a corporate ownership structure is characterized by mutual ownership.arrow_forward1. For external reporting, the individual financial statements of the home office and the branch are combined a. by using complex consolidation procedures. b. by recognizing the home office's own assets, liabilities, income and expenses plus its share in the branch's assets, liabilities, income and expenses. c. by adding together similar items of assets, liabilities, income and expenses. d. by adding together similar items of assets, liabilities, income and expenses 'and eliminating reciprocal accounts. 2. A credit memo received from the branch is recorded by the home office as a. Credit to home office account b. Credit to allocated expense c.Credit to investment account d. Debit to investment accountarrow_forwardwhat are intra-entity transfers? How do you treat intra-entity transfers while consolidating the financial statements of a parent company and its subsidiary?. Discuss with suitable examples.arrow_forward
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