F3 - Intercompany Transactions

Question 1

When a company owns less than 50% of the common stock of an investee corporation, the investment account can be reported:

Answer 1

Under the cost or equity method, depending on whether significant influence is exercised. Receivables and payables to the investee are reported separately on the balance sheet.

Question 2

Unrealized profit to be eliminated from inventory =

Answer 2

Interco. Profit inventory X % of inventory purchased still on hand.

Question 3

What are the effects of when a parent sells a machine to its subsidiary?

Answer 3

The effect of the intercompany sale should be eliminated. The machine should be shown on the consolidated statement at the parent’s original cost. Depreciation should continue as if the sale had not occurred.

Question 4

With an intercompany sale of assets, the asset should be reported at

Answer 4

the carrying value prior to the sale on the consolidated balance sheet.

Question 5

When members of a consolidated group have intercompany bond holdings, the bonds are:

Answer 5

Considered “retired.” The bonds are eliminated in consolidation and the difference (gain or loss) between the discounted issue price and the premium on acquisition would be included in retained earnings.