Answered: adjustment for consolidated entry

Business

Accounting

adjustment for consolidated entry

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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What is a good response to? Unrealized intercompany inventory profits from a prior period are eventually resold in the current period to continue to lower inventory numbers. This eventually increases the net income, however the profits are pushed until the resale period to accurately report the income. The sales of inventory between the parent company and the subsidiary should be eliminated and therefore would no affect the parent's financial statements. However, when the inventory is finally sold to an unaffiliated customer, not a subsidiary, the income would then be reported and affect the net income and financial statements. It is important to note for record keeping if a transaction has occurred upstream or downstream, however, any intercompany transactions, whether upstream or downstream, should be eliminated (Taylor, 2022).
If an investor sells merchandise to an investee and the investee resells all of the items to outside parties in the same period, what equity method entry is required?\\nSelect one:\\nA. No equity method entry is required, since the gross profit is realized.\\nB. The entire gross profit is deferred with a credit to Equity Income and Debit to Equity Investment\\nC. The entire gross profit is deferred with a debit to Equity Income and credit to Equity Investment.\\nD. The investor's percentage of the gross profit is deferred with a debit to Equity Income.
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 above
Hoosier Inc. uses the LIFO inventory cost method to prepare the company's tax return. Which method must the company use to account for inventory on their financial statements? Assume US GAAP and rising costs. O FIFO LIFO O Weighted average or LIFO Specific Identification O LIFO or FIFO, but not weighted average
Lower of cost or market: Multiple Choice Records only an increase in inventory value. Is only applicable to companies using LIFO. Reports all inventory items at full cost Can be applied to each individual item, major categories of items, or the whole inventory- Is only applicable to companies using FIFO.
Do not use negative signs with your answers below. Reconciliation of Cost to Equity Method Parent's pre-consolidation net income 401000 v Dividend Income 81000 v P% x Net income of subsidiary P% x AAP amortization 0 x Net income attributable to controlling interest $ 0 x b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement Sales $ 12200000 v Cost of goods sold 8120000 v Gross profit 4080000 v Operating expenses 0 x Net income Net income attributable to noncontrolling interests 0 x Net income 0 x
How are intercompany sales eliminated? Select one: a. Decrease Parents inventory and Subsidiary inventory b. Decrease sales and inventory c. Decrease cost of sales and inventory d. Decrease sales and cost of sales
U Company and V Company are identical in all the expects, except the fact the U Company follows FIFO and V Company follows LIFO. If the inventory costs are rising, U Company's inventory turnover ratio and gross profit compared to V Company will be: Lower Higher Lower Lower Higher Higher Higher Lower
why would a corporate entity mark up inventory when selling on an intercompany basis?
(a) What is the underlying principle in eliminating intercompany inventory transactions? (b) How do intercompany inventory transactions effect NCI (non-controlling interest)? Note the effect for both downstream and upstream sales.