Advanced Financial Accounting
11th Edition
ISBN: 9780078025877
Author: Theodore E. Christensen, David M Cottrell, Cassy JH Budd Advanced Financial Accounting
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 6.1.1E
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 correct option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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.
Senior Inc. owns 85 percent of Junior Inc. During 20X8, Senior sold goods with a 25 percent gross profit to Junior. Junior sold all of these goods in 20X8. How should 20X8 consolidated income statement items be adjusted?
Group of answer choices
No Adjustment is necessary
Sales, Costs of Goods Sold and Inventory should be adjusted
Net Income should be adjusted
Sales and Cost of Good Sold should be adjusted
Question 4:
Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd,
for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half
the items to Ningbo Ltd for $8000. The tax rate is 30%.
The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation
adjustment entries are as follows:
Sales
Dr
15 000
Cost of Sales
Cr
13 000
Inventory
Cr
2 000
Deferred Tax Asset
Dr
300
Income Tax Expense
Cr
300
Required
(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line by line
basis the correct adjustment entries.
(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.
->
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. 6.5.3ECh. 6 - Prob. 6.7ECh. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Prob. 6.11ECh. 6 - Prob. 6.12ECh. 6 - Prob. 6.13ECh. 6 - Prob. 6.15ECh. 6 - Prior-Period Inventory Profits Home Products...Ch. 6 - Prob. 6.17PCh. 6 - Prob. 6.18PCh. 6 - Prob. 6.19PCh. 6 - Prob. 6.20PCh. 6 - Prob. 6.21PCh. 6 - Prob. 6.22PCh. 6 - Prob. 6.24PCh. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29PCh. 6 - Prob. 6.30PCh. 6 - Prob. 6.31PCh. 6 - Prob. 6.33PCh. 6 - Prob. 6.34PCh. 6 - Prob. 6.35APCh. 6 - Prob. 6.36AP
Knowledge Booster
Similar questions
- Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year: Date Amount 12/31/19 $13,000 12/31/20 23,300 12/31/21 30,200 On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $500,000. Birch reported a $490,000 book value, and the fair value of the noncontrolling interest was $125,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $224,000 when Cedar had a $253,000 book value and the 20 percent noncontrolling interest was valued at $56,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life. These companies report the following financial information. Investment income figures are not included. 2019 2020 2021 Sales: Aspen Company $ 637,500 $ 650,000 $ 732,500 Birch…arrow_forwardSelected 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…arrow_forwardAnderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on january 1, 2020. 2020 2021 2022 Purchases by Philbin Ending inventory on Philbin's books 1,200 4,000 $ ৪,000 5 12,000 $15.000 3,000 Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. 2020 2021 2022 $ 70,000 $ 85,000 $ 94,000 Dividends paid by Anderson 10,000 10,000 15,000 Anderson's net income Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, compute the net income attributable to the noncontrolling interest of Anderson for 2022. O $9,400. $9,375. $9,425. $8,485. $9,325.arrow_forward
- (a) Jessica Ltd sold inventory during the current period to its wholly-owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:RequiredSalesCost of Sales InventoryDr15 000Cr 13 000 Cr 2 000DeferredTaxAsset Dr 300 Income Tax ExpenseCr 300(i) Discuss whether the entries suggested by Li Chen 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 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its’ carrying value in Liala Ltd book was $600000 (costs $900000, accumulated depreciation $300000). This plant has a remaining useful…arrow_forwarda) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:RequiredSalesCost of Sales InventoryDr15 000Cr 13 000 Cr 2 000DeferredTaxAsset Dr 300 Income Tax ExpenseCr 300(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry. (2.5 marks)(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 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its’ carrying value in Liala Ltd book was $600000 (costs $900000, accumulated depreciation $300000). This plant has a…arrow_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
- K Company owns 100% of E Company. During the year, Kianapurchased inventory from Elyssa at a mark-up of 20% based on cost.How should the group compute for consolidated cost of sales?a. Cost of Sales of K + Cost of Sales of E– intercompany sales + Realized profit in beginning inventory – Unrealized profit in ending inventory.b. Cost of Sales of K + Cost of Sales of E – intercompany sales – Realized profit in beginning inventory + Unrealized profit in ending inventory.c. Cost of Sales of Kiana + Cost of Sales of Elyssa – Intercompany sales d. Cost of Sales of K + Cost of Sales of Earrow_forwardAnderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin’s intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 2020 2021 2022 Purchases by Philbin $ 8,000 $ 12,000 $ 15,000 Ending inventory on Philbin’s books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Anderson’s income and dividends. 2020 2021 2022 Anderson’s net income $ 70,000 $ 85,000 $ 94,000 Dividends paid by Anderson 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2022 consolidation worksheet entry with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2021 intra-entity transfer of merchandise? Multiple Choice $3,000.…arrow_forwardComputing the amount of equity income and preparing [I] consolidation journal entries Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Subsidiary Intercompany Net Inventory Sales Income 2013 $500,000 2012 $400,000 $75,000 $50,000 Description [cogs] Investment in subsidiary Cost of goods sold [sales] Sales Gross Profit % Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company uses the full equity method to account for its subsidiary. Cost of goods sold [lcogs] Cost of goods sold Inventory [pay] Accounts payable 30% a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equity…arrow_forward
- Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin’s intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 2020 2021 2022 Purchases by Philbin $ 8,000 $ 12,000 $ 15,000 Ending inventory on Philbin’s books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Anderson’s income and dividends. 2020 2021 2022 Anderson’s net income $ 70,000 $ 85,000 $ 94,000 Dividends paid by Anderson 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2020 consolidation worksheet entry with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2020 intra-entity transfer of merchandise?arrow_forward2. Martindale Company, a 100% owned subsidiary of Weisman Corporation, sells inventory to Weisman at a 20% profit on selling price. The following data are available pertaining to inter-company purchases by Weisman: Inter-company sales: Unsold at year end (based on selling price): 2020: $18,000 2020: $4,000 2021: $19,400 2021: $6,000 2022: $21,500 2022: $8,000 Martindale's profit numbers were $125,000, $142,000 and $265,000 for 2020, 2021, and 2022, respectively. Weisman received dividends from Martindale of $25,000 for 2020 and 2021, and $30,000 for 2022. Assume Weisman uses the equity method to account for its investment in Martindale. What is the balance in pre-consolidation Income (loss) from subsidiary for 2022? Select one: A. $268,600 B. $235,000 C. $265,400 D. $264,600arrow_forward10. During 20x9, PP Corporation recorded sales of inventory costing P500,0000 to SS Company, its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31,20x9, SS held one- fifth of this goods inventory. The following information pertains to PP and SS's sales for 20x9: (see image below) In its 20x9 consolidated income statement, what amount should PP report as cost of sales? * PP P 2,000,000 (800,000) P1.200.000 SS P1,400,000 1700.000) P 700.000 Sales Cost of Sales Gross Profit Your answerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning