M6 - Intercompany Transactions

Question 1

How to calculate intercompany sales:

Answer 1

Revenue - Parent
Revenue - Subsidiary +
-----------------------------------
Total
(Revenues Consolidated)
------------------------------------
Intercompany Sales

Question 2

Consolidated dividends paid is always the same as what

Answer 2

The parent dividends paid since dividends paid by sub are 100% eliminated in consolidation

Question 3

How to calculate the Subsidiary’s payable to the parent for intercompany sales

Answer 3

Accounts Receivable - Parent
Accounts Receivable - Subsidiary +
—————————————————
Total
(Accounts Receivable Consolidated)
—————————————————–
Intercompany Payable

Question 4

How to calculate what amount of unrealized intercompany profit was eliminated

Answer 4

Inventory - Parent
Inventory - Subsidiary  +
---------------------------------
Total
(Inventory - Consolidated)
----------------------------------------
Unrealized Intercompany Profit Eliminated

Question 5

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. (Sub buys shares of parent). This follows the theory of consolidated financial statements presenting one economic entity. (You cannot make money selling stock to yourself) (true or false)

Answer 5

TRUE

Question 6

The unrealized profit to be eliminated from inventory is calculated as follows:

(Sub sold inventory to Parent for profit and parent still had inventory remaining on hand at end of year)

Answer 6

Unrealized Profit to be eliminated =
Intercompany Profit on Inventory * % of inventory purchased still on hand

Subtract that total from the current assets

Question 7

Parent sells machine to Sub. What should happen on the consolidated balance sheet, this machine should be included in cost and accumulated depreciation as:

Answer 7

The effect of the intercompany sale should be eliminated. The machine should be shown on the consolidated statements at the Parents cost. Depreciation should continue as if the sale had not occurred.

Question 8

True or False: All intercompany billings are eliminated in consolidation.

Answer 8

True

Question 9

True or False: Fixed asset cost is based on original cost from the outside world and remains the same on the consolidated financial statements.

Answer 9

True

Question 10

True or False: When members of a consolidated group have intercompany bond holdings, the bonds are eliminated in consolidation and the difference (gain or loss) between the discounted issue price and the premium on reacquisition would be included in retained earnings.

Answer 10

True