Cpa Review- Far 3-7 (Intercompany Transactions)

Front 1

Intercompany Transactions

Back 1

Eliminate 100% or intercompany transactions, even when NCI exists.

Hint 1

Must be eliminated b/c they lack the criteria of being "arms length."

Front 2

Balance Sheet

Back 2

1. Eliminate 100% of all intercompany payables and receivables.

Hint 2

2. Eliminate 100% of intercompany gross profit in ending inventory and fixed assets of parent or Sub.

Front 3

Income Statement

Back 3

-Eliminate 100%
1. Gain on Sale / Depreciation Expense (intercompany fixed asset sales)

Hint 3

2. Interest Expense / Interest Income (bonds)
3. Sales / COGS (intercompany inventory transactions

Front 4

Not Consolidated = Not Eliminated

Back 4

-Do not eliminate intercompany accounts if you do NOT consolidate.

Hint 4

1. Separate report in F/S's
2. Footnote disclosure

Front 5

Intercompany Inventory/Merchandise Transactions

Back 5

-The total amount of intercompany sale and COGS should be eliminated prior to preparing the consolidated F/S's.
-The intercompany profit must be eliminated from the ending inventory and the COGS of the purchasing affiliate.

Hint 5

-The intercompany profit in beginning inventory that was recognized by the selling affiliate in the previous year must be eliminated by an adjustment (debit) to retained earnings.

Front 6

Intercompany Bond Transactions

Back 6

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 I/S.

Hint 6

-The gain/loss on the extinguishment of debt is calculated as the difference between the price paid to acquire the debt and the BV of the debt. Recorded through an elimination entry (not on either company's books)

Front 7

Intercompany Sale of Land

Back 7

The intercompany gain/loss on the sale of land remains unrealized until the land is sold to an outsider.

Hint 7

A workpaper elimination entry in the period of sale eliminates the intercompany gain/loss and adjusts the land to its original cost.

Front 8

Intercompany Profit on Sale of Depreciable Fixed Assets

Back 8

The gain/loss on the intercompany sale of a depreciable asset is unrealized from a consolidated F/S perspective until the asset is sold to an outsider.

Hint 8

A working paper elimination entry in the period of sale eliminates the intercompany gain/loss and adjusts the asset and accumulated depreciation to their original balance on the date of sale.