F3-Intercompany Transactions

Question 1

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

F3-26

Answer 1

Eliminate:

• The effects of intercompany dividends.
• Parent’s investment in sub account.
• The entire stockholder’s equity section of the sub.
• The effet of the gain or loss and adjust for the excess depreciation o the sale of property, plan and equipment between affiliates.
• All intercompany sales and purchases.
• All other intercompany balance sheet and income statement accounts.
• Intercompany profit in cost of good sold, and in the begginning and ending Inventories relating to an intercompany sales of mechardise between affiliates.

Adjust:

• Recognize non-controlling interest.
• Adjust the balance sheet of the sub to fair value.
• Establish goodwill.

Question 2

State the workpaper elimination entry for intercompany inventory transactions?

F3-27

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.

F3-28.

Answer 3

DR: Bonds payable

DR: Premium (or credit discount)

     CR: Investment in affiliates bonds

     CR: Gain on extinguishment of bonds

              (or debit loss on extinguishment of bonds)

Question 4

State the workpaper elimination entry for intercompany land transactions.

F3-29.

Answer 4

DR: Intercompany gain on sale of land

      CR: Land

Question 5

State the workpaper elimination entries for intercompany depreciable assets transactions.

F3-30

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