Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 5, Problem 1P
To determine
Identify the appropriate answer for the given statement from the given choices.
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Choose the correct. What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?a. Revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream.b. Intra-entity sales result in gross profit overstatements regardless of amounts remaining in ending inventory.c. Gross profits must be deferred indefinitely because sales among affiliates always remain in the consolidated group.d. When intra-entity sales remain in ending inventory, control of the goods has not changed.
S1: The amount of intercompany profit subject to elimination is calculated on the basis of the
buyer's affiliate's gross profit rate stated as a percentage of cost.
S2: Intercompany sales of inventory necessitate adjustments to the calculation of the
distribution of income to the controlling interest.
O Only S1 is correct.
O Only S2 is correct.
O Both statements are correct.
O Both statements are incorrect.
Please answer the following questions relating to unrealized profit in a business combination.
1) Intra entity transfers between the components of business combinations are quite common. Why do these intra company transactions occur frequently?
2) How are unrealized inventory gross profit created, and what are the necessary consolidation entries created to account for these gains?
3) How do intra entity profit present in any year affect the noncontrolling Interest calculation?
Chapter 5 Solutions
Advanced Accounting
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 - Prob. 6PCh. 5 - Prob. 8PCh. 5 - Prob. 11PCh. 5 - What is the total of consolidated cost of goods...Ch. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - What is the consolidated total for inventory at...
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- Explain why consolidated entities defer intra-entity gross profit in ending inventory and the consolidation procedures required subsequently to recognize profits.arrow_forward1. The disclosure requirements for an operating segment do not include: a. Unusual items b. Income tax expense or benefit c. Interest revenue d. Cost of goods or services sold 2. A reconciliation between the numbers disclosed in operating segments and consolidated numbers need not be provided for: a. Cost of goods sold b. Profit or loss c. Net assets d. Revenues 3. Each reportable segment is required to disclose the following information except for: a. Unusual items b. Depreciation, depletion, and amortization c. Capital expenditures d. Gross profit or loss 4. An enterprise is required to disclose information about its major customers if 10 percent or more of its revenue is derived from any single customer. This disclosure must include: a. The products or services generating the revenue from such sales b. The operating segment or segments making such sales and the total revenue from the customer c. The name of the customer to whom the sales were made d. The dollar amounts of revenue…arrow_forwardWhat information about revenues by geographic area should a company present?a. Disclose separately the amount of sales to unaffiliated customers and the amount of intra-entity sales between geographic areas.b. Disclose as a combined amount sales to unaffiliated customers and intra-entity sales between geographic areas.c. Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas.d. No disclosure of revenues from foreign operations need be reported.arrow_forward
- Which of the following items shall be cancelled on consolidation? a. Receivables related to intra-group sales b. Payables related to intra-group purchases c. Unrealised profit on intra-group transactions d. Loans related to intra-group lending e. All of the abovearrow_forwardWhen a component of a company's operations is classified as held for sale at the end of an accounting period, The component may not be reported as a discontinued operation until sold. The component will be reported on the balance sheet at the higher of its (1) fair value net of any costs to sell or (2) book value. The company may report the difference between the component's (1) fair value net of any costs to sell and (2) book value as a loss from discontinued operations on the income statement. None of these choices apply.arrow_forwardHow much is the sales of branch to be included in the combined financial statements? How much is the cost of goods sold of the branch to be included in the combined financial statements? How much is the ending inventory of the branch to be included in the combined financial statements? How much is the true profit (NET INCOME) of the branch? How much is the adjusted balance of the branch current account immediately prior to combining the financial statements?arrow_forward
- Which statement is incorrect regarding reclassification of financial assets? A. Reclassifications are only permitted on the change of an entity's business model and are expected to occur only infrequently. B. None of these. C. An entity shall restate any previously recognized gains, losses (including impairment gains or losses) or interest. D. An entity shall account for transfers between categories prospectively, at the beginning of the period after the change in the business model.arrow_forwardWhich of the following accounting treatments for costs related to business combination is incorrect? Group of answer choices a. Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an internal acquisitions department shall be recognized as expense in the Profit/Loss in the periods in which the costs are incurred. b. The costs related to issuance of financial liability at fair value through profit or loss shall be recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. c. The costs related to the organization of the newly formed corporation also known as pre-incorporation costs shall be capitalized as goodwill or deduction from…arrow_forwardExplain the consolidation adjustment needed in group retained earnings and group inventory account for unrealised profit arisen from trading of goods.arrow_forward
- Rustic Company has recognized an impairment loss on the value of inventory. If the inventory's value subsequently recovers, under which accounting standards may Rustic revalue the inventory upward and recognize a gain? A) Neither IFRS nor U.S. GAAP allows a recovery in inventory value to be recognized as a gain. B) IFRS allows a recovery in inventory value to be recognized as a gain, but U.S. GAAP does not. c) U.S. GAAP allows a recovery in inventory value to be recognized as a gain, but IFRS does not.arrow_forwardIn a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true? Multiple Choice Negative goodwill is recorded. A deferred credit is recorded. A gain on bargain purchase is recorded. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as gain.arrow_forwardChoose the correct. When does gain recognition accompany a business combination?a. When a bargain purchase occurs.b. In a combination created in the middle of a fiscal year.c. In an acquisition when the value of all assets and liabilities cannot be determined.d. When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company.arrow_forward
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