Financial 4 - Intercompany Transactions

Question 1

Consolidated Dividends

Answer 1

• Consolidated dividends paid are the same as the parent company dividends paid. The dividends paid by the subsidiary are 100% eliminated in consolidation
• Intercompany dividends paid to the should be eliminated. This amount is how much the non-controlling interest will be decreased by

Question 2

Intercompany Revenues, Receivables, Payables and Unrealized Profit

Answer 2

• Intercompany Sales - (Parent + Sub) - Consolidated = Interco Sales
• Interco Payables - (Parent AR + Sub AR) - Consolidated AR = Interco Payable
• Interco Profit unrealized - (Parent Inv + Sub Inv) - Consolidated Inv = Unrealized Profit
  OR
• Interco Profit unrealized - GP * (Inventory on Hand/Purchases of Inventory)

Question 3

Theory of Presenting One Economic Entity

Answer 3

You cannot report any gain from the purchase of Parent stock by Subsidiary. The purchase by the member of a consolidated group of stock of another member of the consolidated group is treated as a treasury stock transaction. This follows the theory on the face of the card

*You cannot make money selling stock to yourself