ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 6, Problem 6.5.2E
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 net income to be reported in the consolidated income statement.
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Students have asked these similar questions
Ice Corporation owns 30% of Idea Company and applies the equity method. In 2XX0, Ice Corp. sells
merchandise costing $288,000 to Idea for $360,000. Idea's ending inventory includes $60,000 purchased
from Ice.
Which of the following is the correct equity method entry to record the realization of the gross profit in
2XX1?
Select one:
O a.
O
Equity Investment
Cost of Goods Sold
b.
Equity Income
Equity Investment
C.
d.
Equity Income
Debit Credit
60,000
Equity Investment 3,600
Equity Income
Equity Investment
60,000
Debit Credit
3,600
Debit Credit
3,600
3,600
Debit Credit
60,000
60,000
Fromage purchased 80% of the equity shares in Frais on 1 January 20X1. During the year ended 31
December 20X1, Fromage sold inventory to Frais at a sales price of £50,000. None of the goods remained
in Frais' inventory. Fromage applied a margin of 20%.
Extracts from the statement of profit or loss for the two entities are shown below:
Fromage
Frais
£000
£000
Revenue
1,000
750
Cost of sales
(650)
(250)
What would be the revenue and cost of sales figures reported in the consolidated statement of
profit or loss for the year ended 31 December 20X1?
Answer to the nearest £000
a.
Revenue 1700 Cost of sales 850
O b. Revenue 1750 Cost of sales 910
O c. Revenue 1700 Cost of sales 860
d. None of these options are correct
Revenue 1550 Cost of sales 800
2) At December 31, 2021, The Comparative income statements of Polo Corporation and Solo
Corporation show the following (in thousands):
Sales
Income from Solo
Cost of goods sold
Operating expenses
Polo
$3,200
384
1,800
800
Solo
$1,300
400
400
Additional information
1. Polo Corporation acquired 80 percent of Solo for $1,600,000 on January 1, 2019, when Solo's
Stockholders' equity at book value was $1,400,000.
2. The excess of the cost Polo's investment in Solo over book value acquired was allocated
$60,000 to undervalued inventories that were sold in 2019, $80,000 to undervalued equipment
with a four-year remaining useful life, and the remainder to goodwill.
Required:
Prepare a consolidated income statement for Polo Corporation and Subsidiary for the year ended
December 31, 2021.
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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