Intercompany Transactions Flashcards
intercompany transactions
eliminate 100% since not arm’s length
not consolidated
not eliminated
intercompany inventory
eliminate:
- sales (DR)
- retained earnings (DR)
- COGS of purchaser (CR)
- intercompany profit COGS (CR)
- ending inventory (CR)
- profit
correcting accounts (intercompany inventory)
- reverse original intercompany transaction (sales/COGS)
- correct COGS (if sold to outsider)
- correct ending inventory (if inventory still in hand)
intercompany bond transactions
gain/loss recognized on consolidated I/S
elimination entry: DR, bonds payable DR, premium on BP DR, loss on extinguishment of bonds CR, investment on sub's bonds CR, gain on extinguishment of bonds
gain/loss on extinguishment of debt
= price paid to acquire debt
- BV of debt
not reported on either company’s books
recorded as an elimination entry
intercompany interest
eliminated
any interest expense, income, payable, receivable
intercompany sale of land
gain/loss on sale is unrealized until sold to an outsider
DR, retained earnings
CR, land (to eliminate intercompany profit)
elimination entry:
DR, intercompany gain on sale of land
CR, land (amt to restore land to original historical cost)
intercompany profit on sale of depreciable fixed asset
gain/loss on sale is unrealized until sold to an outsider
elimination entry:
DR, intercompany gain on sale
CR, machinery
CR, accumulated depreciation
amounts would be what’s needed to restore asset and AD to correct amounts
depreciation expense (intercompany elimination)
correct depreciation would be as if it was never sold
elimination of excess:
DR, accumulated depreciation
CR, depreciation expense
subsequent year elimination
intercompany sale of depreciable asset
to adjust asset:
DR, retained earnings
CR, machinery
CR, accumulated depreciation
to adjust depreciation:
DR, accumulated depreciation
CR, depreciation expense
