ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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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.
Pau de Arco
Kati Alis
Consolidated
Statement of financial position accounts
Accounts receivable.
P 26,000
P19,000
P 42,000
Inventory.........
25,000
50,000
30,000
67,000
Investment in Kati Alis.
Goodwill......
30,000
Noncontrolling interest........
10,000
Stockholders' equity........
154,000
50.000
154,000
Statement of comprehensive income accounts
Revenues............
P200,000
P140,000
P300,000
Cost of goods sold...
150,000
110,000
225.000
Gross profit.................
50,000
30,000
75,000
P9,000
Equity in earnings of Kati Alis.
Net income.........
P36,000…
2. Using the information provided in the image below, determine the
carrying amount of the inventory that S Company purchased from P
Company in the December 31, 2019 consolidated Statement of financial
position. *
Selected information from the separate and consolidated statements of financial position and statements of
comprehensive income of P Company. and its subsidiary, S Company., as of December 31, 2019, and for the
year then ended is as follows:
P Company
S Company
Consolidated
Statement of financial position accounts
Accounts receivable. .
Inventory....
Investment in S Co..
Goodwill.
Noncontrolling interest...
Stockholders' equity...
P 26,000
30,000
67,000
P19,000
25,000
P 42,000
50,000
30,000
10,000
154,000
154,000
50,000
Statement of comprehensive income accounts
P200,000
150,000
50,000
P140,000
110,000
30,000
P300,000
225,000
75,000
Revenues..
Cost of goods sold..
Gross profit.
Equity in earnings of S Co.
Net income...
P9,000
P36,000
P20,000
P36,000
Additional information…
2. Using the information provided in
the image below, determine the
carrying amount of the inventory that
S Company purchased from P
Company in the December 31, 2019
consolidated Statement of financial
position. *
Selected information from the separate and consolidated statements of financial position and statements of
comprehensive income of P Company. and its subsidiary, S Company., as of December 31, 2019, and for the
year then ended is as follows:
P Company
S Company
Consolidated
Statement of financial position accounts
Accounts receivable. .
Inventory....
Investment in S Co...
Goodwill.
P 42,000
50,000
P 26,000
P19,000
25.000
30,000
67.000
Noncontrolling interest..
Stockholders' equity..
30,000
10,000
154,000
154,000
50,000
Statement of comprehensive income accounts
Revenues...
Cost of goods sold.
Gross profit.
P300,000
225.000
75,000
P200,000
P140,000
150,000
50,000
110,000
30,000
Equity in earnings of S Co.
Net income..
P9.000
P36,000
P20,000
P36,000
Additional information…
Chapter 6 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
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_forwardStarting from the separate inventory balances of the affiliates, the consolidatedinventory balance will be affectedby all of the following, except: A.Realized profit on beginning inventoryB.Excess of inventory FV over BV of the subsidiary at the date of acquisitionC.Unrealized profit on ending inventoryD.Amortization of the excess of inventory FV over BV of the subsidiary at the date ofacquisitionarrow_forwardPhone Corporation owns 80 percent of Smart Company's stock. At the end of 20X8, Phone and Smart reported the following partial operating results and inventory balances: Total sales Sales to Smart Company Sales to Phone Corporation Net income Operating income (excluding investment income from Smart) Inventory on hand, December 31, 20x8, purchased from: Smart Company Phone Corporation Phone Corporation $ 700,000 148,400 Amount of sales 77,000 49,680 Required: a. What amount of sales will be reported in the consolidated income statement for 20X8? Amount of cost of goods sold Smart Company $ 522,000 Phone regularly prices its products at cost plus a 40 percent markup for profit. Smart prices its sales at cost plus a 20 percent markup. The total sales reported by Phone and Smart include both intercompany sales and sales to nonaffiliates. 248,400 27,000 44,520 b. What amount of cost of goods sold will be reported in the 20X8 consolidated income statement? Note: Do not round intermediate…arrow_forward
- 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 costarrow_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_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
- What 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 cost of goods sold of the affiliates, the consolidated cost of goods sold will be affected by all of the following, except: A. Amortization of the excess of inventory FV over BV of the subsidiary B. Unrealized profit on ending inventory C. Excess of inventory FV over BV of the subsidiary at the date of acquisition D. Realized profit on beginning inventoryarrow_forwardThe sale of inventory items by a parent company to an affiliated company a. enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining. b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. c. does not result in consolidated income until the merchandise is sold to outside entities. d. does not require a working paper adjustment if the merchandise was transferred at cost.arrow_forward
- Starting from the separate cost of goods sold of the affiliates, the consolidatedcost of goods sold will be affectedby all of the following, except: a.Realized profit on beginning inventoryb.Excess of inventory FV over BV of the subsidiary at the date of acquisitionc.Amortization of the excess of inventory FV over BV of the subsidiaryd. Unrealized profit on ending inventoryarrow_forwardThe material sale of inventory items by a parent company to an affiliated company a. Affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. b. Enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining c. Does not result in consolidated income until the merchandise is sold to outside parties. d. Does not require a working paper adjustment if the merchandise was transferred at cost.arrow_forwardOn January 1, 2012, Aspen Company acquired 80 percent of Birch Company's outstanding voting stock for $438,000. Birch reported a $457,500 book value and the fair value of the noncontrolling interest was $109,500 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $200,000 when Cedar had a $205,000 book value and the 20 percent noncontrolling interest was valued at $50,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included. Sales: Aspen Company Birch Company Cedar Company Expenses: Aspen Company Birch Company Cedar Company Dividends declared: Aspen Company Birch Company Cedar Company 2012 $ 632,500 261,250 Not available $ 542,500 200,000 Not available $15,000 8,000 Not available 2013 2014 $747,500 327,250 $822,500 416,900 185,900 292,600 $522,500 $750,000 261,000…arrow_forward
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