F3 - Intercompany Transactions

Question 1

Name sevaral pro forma workpaper elimination entries when producing consolidated financial statements.

Answer 1

Eliminate:

• The effects of intercompany dividends.
• Parent’s investment in sub account.
• The entire stockholder’s equity section of the sub.
• The effects of the gain or loss and adjust for the excess depreciation on the sale of property, plant and equipment between affiliates.
• All intercompany sales and purchases.
• All other intercompany balance sheet and income statement accounts.
• Intercompany profit in cost of goods sold, and in beginning and ending inventories relating to an intercompany sale of merchandise between affiliates.

Adjust:

• Recognize noncontrolling interest.
• Adjust the balance sheet of the sub to fair value.
• Establish goodwill.

Question 2

State the workpaper eliination entry for inercompany inventory transactions.

Answer 2

Dr. Retained earnings (intercompany profit in beginning inventory)

Dr. Intercompany Sales

Cr. Intercompany cost of goods sold

Cr. Cost of goods sold (intercompany profit in goods sold)

Cr. Ending inventory (intercompany profit in ending inventory)

Question 3

State the workpaper elimination entry for intercompany bond transactions.

Answer 3

Dr. Bonds payable

Dr. Premium (or credit discount)

Cr. Investment in affiliates bonds

Cr. Gain on exinguishment of bonds (or debit loss on extinguishment of bonds)

Question 4

State the workpaper elimination entry for intercompany land transactions.

Answer 4

Dr. Intercompany gain on sale of land

Cr. Land

Question 5

State the workpaper elimination entries for intercompany depreciable assets transactions.

Answer 5

Elimination Entry 1 - Eliminate intercompany gain and adjust asset and accumulated depreciation to original amounts:

Dr. Intercompany gain on sale of machinery

Cr. Machinery

Cr. Accumulated depreciation

Elimination Entry 2 - Eliminate excess depreciation:

Dr. Accumulated depreciation

Cr. Depreciation expense