Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 6.1.6E
To determine
Intercompany transactions:
Consolidated financial statements are prepared by a parent company to consolidate the assets and liabilities of the parent and its subsidiaries. There may be some transactions between these companies which are called intercompany transactions.
To choose: The amount of the inventory to be reported on the consolidated
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Selected information from the separate and consolidated statements of financial position and statements of comprehensive income of Pau de Arco, Inc. and its subsidiary, Kati Alis Co., as of December 31, 20X9, and for the year then ended is as follows: (see image below) In Pau de Arco's December 31, 20X9, consolidated Statement of financial position, the carrying amount of the inventory that Kati Alis purchased from Pau de Arco.
The consolidation procedures for intercompany sales are similar for upstreamand downstreams sales
A. Under a periodic inventory system but not under a perpetual inventory system
B. When the subsidiary is 100% owned.
C. If the merchandise is immediately sold to outside parties
D. If the merchandise is transferred at cost
Pre-consolidation bookkeeping, downstream intercompany sales, profits in ending inventory-Equity method
Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2013, prior to any investment bookkeeping or intercompany adjustments:
Parent Subsidiary
Revenues $4,200,000 $2,850,000
Cost of goods sold (2,730,000) (1,710,000)
Gross profit 1,470,000 1,140,000
Selling general & administrative expenses (975,000) (757,500)
Net income $495,000 $382,500
On January 1, 2013, neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates.
Assume that during the year ended December 31, 2013, the parent sold to the subsidiary $250,000 of merchandise. At December 31, 2013, the…
Chapter 6 Solutions
Advanced Financial Accounting
Ch. 6 - Why must inventory transfers to related companies...Ch. 6 - Why is there a need for a consolidation entry when...Ch. 6 - Prob. 6.3QCh. 6 - How do unrealized intercompany profits on a...Ch. 6 - How do unrealized intercompany profits on an...Ch. 6 - Prob. 6.6QCh. 6 - Prob. 6.9QCh. 6 - Prob. 6.10QCh. 6 - How is the amount of consolidated retained...Ch. 6 - How will the elimination of unrealized...
Ch. 6 - Prob. 6.14QCh. 6 - Is an inventory sale from one subsidiary to...Ch. 6 - Prob. 6.16QCh. 6 - Prob. 6.1.1ECh. 6 - Prob. 6.1.2ECh. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - Prob. 6.1.5ECh. 6 - Prob. 6.1.6ECh. 6 - Prob. 6.3.1ECh. 6 - Prob. 6.3.2ECh. 6 - Prob. 6.3.3ECh. 6 - Prob. 6.4.1ECh. 6 - Prob. 6.4.2ECh. 6 - Prob. 6.4.3ECh. 6 - Prob. 6.4.4ECh. 6 - Prob. 6.5.1ECh. 6 - Prob. 6.5.2ECh. 6 - Prob. 6.5.3E
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- Starting from the separate inventory balances of the affiliates, the consolidated inventory balance will be affected by all of the following, except: A. Excess of inventory FV over BV of the subsidiary at the date of acquisition B. Unrealized profit on ending inventory C. Realized profit on beginning inventory D. Amortization of the excess of inventory FV over BV of the subsidiary at the date of acquisitionarrow_forwardH has a 75% owned subsidiary S. During the year ending 31 December 2021 H sold inventory to S for an invoice price of £800,000. S have since sold 75% of that inventory to third parties. The sale was at a mark-up of 25%on cost to H. S is the only subsidiary of H. What is the adjustment to inventory that would be included in the consolidated statement of financial position of H at the year-ending 31 December 2021 resulting from this sale? Show you calculations.arrow_forwardThe consolidation procedures for intercompany sales are similar for upstream and downstreams sales a. Under a periodic inventory system but not under a perpetual inventory system b. If the merchandise is transferred at cost c. If the merchandise is immediately sold to outside parties d. When the subsidiary is 100% owned. Sales from one subsidiary to another are called a. Downstream sales b. Inter subsidiary sales c. Horizontal sales d. Upstream sales Non-controlling interest in consolidated income is never affected by a. Sale of Parent to unaffiliated company b. Downstream sales c. Upstream Sales d. Non-controlling interest is affected by all salesarrow_forward
- Statement 1: Consolidated inventory on the statement of financial position is recorded at fair market value to the affiliated group. Statement 2: In a business combination resulting in a parent company-wholly owned subsidiary relationship, goodwill developed in the working paper elimination is attributed in its entirety to the parent. Statement 3: If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the combination shall be identified as the acquirer. Statement 4: If the intercompany seller is the subsidiary, it is the subsidiary's income that needs adjustment. Statement 5: On the date of the business combination and its partially owned subsidiary, the amount assigned to minority interest in net assets of subsidiary is based on the cost of the parent company's investment in the parents' common stock.Which statement/s is/are true?arrow_forwardWhat should the adjustment for consolidated entry be when a Subsidiary sold inventory to Parent at a lower cost. Example: S bought inventory at a cost of 300. S sold to P at 200.arrow_forwardStarting from the separate inventory balances of the affiliates, the consolidatedinventory balance will be affectedby all of the following, except: a.Unrealized profit on ending inventoryb.Amortization of the excess of inventory FV over BV of the subsidiary at the date ofacquisitionc.Realized profit on beginning inventoryd.Excess of inventory FV over BV of the subsidiary at the date of acquisitionarrow_forward
- If company A acquired 70% of company B on 1/1/16. During 2016 company A made several inventory sales to company B. The cost of goods was $160,000 and sales price of the goods was $250,000. Company B still owned one-third of the inventory at the end of 2016. Consolidated cost of goods sold for 2016 was $3,250,000 due to consolidating adjustments for intra-entity transfers less than intra-entity gross profitin company B ending inventory. How does the consolidated cost of goods sold differ if the inventory transfers had been the same amount and cost for upstream and downstrem? How does the net income attributable to the noncontrolling interest be different in the transfers had been the same amount and cost for upstream and downstream? How does upstream and downstream work?arrow_forwardProblem 2At December 31, 20x4, Baby Corporation acquired all of Mommy Enterprises’ common stock. At that date, the book Values and fair values of Mommy’s identifiable assets and liabilities were identical. Balance sheet data for the individual companies and the consolidated entity on January 1, 20x5, are as follows: 1. Assuming there were no inventory transactions between the companies, what balance for inventory should be reported in the consolidated balance sheet?a. P 0b. P90,000c. P120,000d. P210,0002. What amount did Baby pay to acquire Mommy? Was this amount equal to, greater than, or less than underlying book value? How do you know?a. P110,000; P30,000 greater thanb. P110,000; P30,000 less thanc. Zero; P30,000 less thand. Zero; P30,000 greater than 3. Baby sold land it had purchased 12 years earlier for P10,000 to Mommy immediately after it acquired Mommy. At what price did baby sell the land to Mommy?a. P10,000b. P15,000c. P25,000d. P40,000arrow_forwardConsolidated inventory balance is composed of the book values of the parent’sand the subsidiary’s inventory__________. a.plus/minus the effects of the difference between book value and fair value of thesubsidiary’s inventory balance on the date of acquisition that remains unsold as of yearend, minus the unrealized profit on ending inventory, plus the realized profit on beginninginventoryb.plus/minus the effects of the difference between book value and fair value of thesubsidiary’s inventory balance on the date of acquisition that remains unsold as of yearend, and minus the unrealized profit on ending inventoryc.plus/minus the effects of the difference between book value and fair value of thesubsidiary’s inventory balance on the date of acquisition that remains unsold as of yearendd.and nothing elsearrow_forward
- Lorn Corporation purchased inventory from Dresser Corporation for P120,000 on September 20, 20x2, and resold 80% of the purchased inventory to unaffiliated companies prior to December 31, 20x2, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn owns 70% of Dresser’s voting common stock. The companies had no other transactions during 20x2. What inventory balance will be provided by the consolidated entity on December 31, 20x2? A. P15,000 C. P24, 000B. P16, 800 D. P39, 000arrow_forwardPlease Assist in this question (a) During the current period SP Ltd sold inventory to its wholly owned subsidiary, Jaza Ltd, for $15 000. These items previously cost Sp Ltd $12 000. JazaLtd subsequently sold half the items to Nanjing Ltd for $8000. The tax rate is 30%. The group accountant for SP Ltd, Steve yu, maintains that the appropriate consolidation adjustment entries are as follows: Required (i) Discuss whether the entries suggested Steve Yu are correct, explaining on a line-by-line basis the correct adjustment entry. (ii)Determine the consolidation worksheet entries in the following year, assuming the inventory has been –sold, and explain the adjustments on a line-by-line basis. (b) On 1 July 2016 Henna Ltd sold an item of plant to Jordy Ltd for $450000 when its’ carrying value in Henna Ltd book was $600000 (costs $900000, accumulated depreciation $300000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and…arrow_forwardThe non-controlling interest in consolidated income when the selling affiliate isan 80% owned subsidiary is calculated by multiplying the non-controllingminority delete minority ownership percentage by the subsidiary’s reported netincome. A. Plus realized profit in ending inventory less realized profit in beginning inventory B. Less unrealized profit in ending inventory plus realized profit in beginning inventory C. Less realized profit in ending inventory plus realized profit in beginning inventory. D. Plus unrealized profit in ending inventory less unrealized profit in beginning inventoryarrow_forward
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