10/22 Chapter 6

Question 1

Steps to solve intercompany transactions

Answer 1

1. what is it?
2. What should it be?
3. The difference is your entry

Question 2

arms length

Answer 2

independent parties

Question 3

non arms length transactions

Answer 3

related party transactions, all intercompany transactions, doesn’t mean we have to eliminate it, that’s only the intercompany ones

Question 4

eliminate things that

Answer 4

make the statements wrong, you can’t sell things to yourself.

Question 5

Example: Parent sold to sub for 400 and the sub sold it for 500 the parents COGS was 250

Answer 5

what is it? Sales COGS Profit
900 650(250+400) 250
it should be500 250 250
difference
Sales 400
COGS 400

                    Parent      Sub
Cash                   
Inventory        500        
Sales                
COGS            500
Cash              600       
Inventory            600

Sales 
      600
      SB 0
600
Inventory
500     500
600
-------
600
SB500   100
COGS
500
SB0
        500

Question 6

the entries that change balance sheet or income statement

Answer 6

you make a corresponding entry in the parents books

Question 7

Entry to make on our parents books to balance the Consolidated financial statements

Answer 7

Income from sub 100

investment in sub 100

Question 8

consolidated perspective

Answer 8

the physical movement of inventory from one location to another

Question 9

transfer pricing

Answer 9

used to avoid income taxes

Question 10

realization

Answer 10

sold to a third party

Question 11

parent to sub to outsider

Answer 11

….

Question 12

parent to sub

Answer 12

…..

Question 13

upstream sales

Answer 13

if we only own 80% the profit of 200 would make our entry
NCI in NA   40
   NCI ni NI     40
Inc from sub 160
   Inv in Sub       160