F4 M6 Intercompany Transactions

Question 1

Dividends paid by the sub are ____ during consolidation.

Answer 1

Eliminated

Question 2

What amount of gain should a sub report from a transaction where it sells common stock to its parent?

Answer 2

You can’t make money selling stock to yourself; no gain

Question 3

How do you calculate an unrealized profit that needs to be eliminated from inventory in consolidation of financial statements?

Answer 3

Intercompany profit on inventory x % of inventory purchased still on hand

Question 4

When selling an asset from parent to sub with 100% ownership, what should the parent value the asset and accumulated depreciation at on the consolidated balance sheet?

Answer 4

As if the sale did not occur, asset is at cost of the parent and accumulated depreciation continues as though it didn’t change hands

Question 5

All intercompany billings are ____ in consolidation.

Answer 5

Eliminated

Question 6

The purchase of a parent company bond by the sub is treated as if the bond were retired when the financial statements are consolidated. If the bond book value is greater than the retirement value a ____ is recorded upon consolidation.

Answer 6

Gain

Question 7

If one member of the consolidated group acquires an affiliate’s debt from an outsider, the debt is considered to be retired and a ____ is recognized. All other intercompany account balances are ____.

Answer 7

Gain/loss

Eliminated

Question 8

When consolidating intercompany bonds payable accounts, what all gets eliminated?

Answer 8

Interest expense, interest income, interest payable, interest receivable, amortization of the discount or premium

Question 9

When consolidating intercompany transactions, you find that the parent bought a piece of equipment from the sub at a gain. What accounts need to be eliminated and restored?

Answer 9

Eliminate the gain on the intercompany sale (Dr) and restore the asset and accumulated depreciation to original amounts (Cr). Don’t forget to correct the depreciation expense based on the original cost and useful life.

Question 10

If all inventory is sold by year end, is there an adjustment to inventory for the consolidated financial statements?

Answer 10

No

Question 11

Intercompany dividends should be ____ upon consolidation.

Answer 11

Eliminated