Intercompany Inventory Transactions

Question 1

What type of transactions can be Intercompany?

Answer 1

Buying, Selling, and Transfers. They also include Profits or losses and the balances that result from these transactions

Question 2

What is a Downstream Transaction?

Answer 2

When the parent sells to the subsidiary. Any intercompany profit that results from the sale will be on books of the parent

Question 3

What is an Upstream Transaction?

Answer 3

When the subsidiary sells to the Parent. Any intercompany profit will be recorded on the books of the sub

Question 4

Intercompany Inventory Transaction affect which accounts?

Answer 4

1. ) Sales/COGS - these are overstated because, for consolidated purposes, it is as though no sale occured
2. ) Inventory - Overstates the carrying value. It should be eliminated

Question 5

What are the accounts (on a consolidating worksheet) that may be affected by an intercompany inventory transaction?

Answer 5

1. )Sales/Purchases;
2. )Net income/loss;
3. )Ending Inventory;
4. )Beginning Inventory