Intercompany Transactions; Combined FS/Push down Accounting

Question 1

Intercompany Transactions

Answer 1

• Eliminate 100% of Intercompany Transactions, even when noncontrolling interest exists.
• Eliminate 100% of balance sheet (payables/receivables) and income statement accounts.
• not consolidated = not eliminated

Question 2

Intercompany inventory/merchandise transactions

Answer 2

When inventory has been sold intercompany and you need to correct the accounts, remember to reverse the original intercompany transaction (sale and COGS, internally).

• Inventory sold to outsiders –> Correct COGS
• Investory still on hand –> Correct ending inventory

Question 3

Intercompany Bond Transactions

Answer 3

If one member of the consolidated group acquires an affiliate’s debt from an outsider, the debt is considered to be retired and a gain/loss is recognized on the consolidated income statement.
- difference between price paid to acquire the debt and the BV of the debt. recorded through elimination entry.

Question 4

Intercompany Sale of Land

Answer 4

The intercompany gain/loss on the sale of land remains unrealized until the land is sold to an outsider. The workpaper elimination entry in the period of sale eliminates the intercompany gain/loss and adjusts the land to its original cost.

Question 5

Intercompany Profit on Sale of Depreciable Fixed Assets

Answer 5

G/L on the intercompany sale of a depreciable asset is unrealized from a consolidated FS perspective until the asset is sold to an outsider.

Question 6

Combined Financial Statements

Answer 6

Combined FS of a group of related companies (not consolidated bc there is no parent company).

Question 7

Types of Combined FS

Answer 7

• Companies are under common control
• Companies are under common management
• Unconsolidated subs are combined.

Question 8

Requirements of Combining FS

Answer 8

• Intercompany transactions and balances among these companies eliminated.
• Noncontrolling interests be treated like consolidated FS.
• Capital stock and RE be added across, not eliminated.
• Income statements be added across.

Question 9

Push Down Accounting

Answer 9

Reports assets and liabilities at fair value in separate FS of the sub. In effect, consolidation adjustments are pushed down into the records (and separate FS) of each sub.