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C6-Intercompany Inventory Transactions PDF
C6-Intercompany Inventory Transactions PDF
1
OVERVIEW OF THE CONSOLIDATED ENTITY
AND INTERCOMPANY TRANSACTIONS
3
INVENTORY TRANSACTIONS
4
Calculating Unrealized Profit or Loss
5
DOWNSTREAM SALE OF INVENTORY
• Peerless Products Corporation purchases 80 percent of Special Foods Inc.’s stock on
December 31, 20X0, at the stock’s book value of $240,000. The fair value of Special Foods’
non controlling interest on that date is $60,000, the book value of those shares.
• On April, 20X1, Peerless sale inventory to Special Foods for $10,000. Cost of the inventory
is $7,000
• On November 5, 20X1, Special Foods sells the inventory purchased from Peerless to a
nonaffiliated party for $15,000.
• During 20X1, Peerless reports separate income of $140,000 income from regular
operations and declares dividends of $60,000. Special Foods reports net income of
$50,000 and declares dividends of $30,000.
6
Journal in Peerless’s Books:
7
Journal in Special Food’s Books:
8
DOWNSTREAM SALE OF INVENTORY
Special Elimination
Peerless Consolidated
Food Debit Credit
Sales (10.000) (15.000) 10.000 - (15.000)
COGS 7.000 10.000 - 10.000 7.000
9
Consolidation Worksheet — 20X1 (Equity Method)
10
Consolidation Worksheet — 20X1 (Equity Method)
11
Consolidation Worksheet — 20X1 (Cost Method)
12
Consolidation Worksheet — 20X1 (Cost Method)
13
Consolidation Worksheet — 20X1 (Equity Method)
- another approach
Special Consolidation Entries
Peerless Foods Dr Cr Consolidated
Sales (400.000) (200.000) 10.000 (590.000)
Income from Special Foods (40.000) - 40.000 -
Cost of good sold 170.000 115.000 10.000 275.000
Depreciation Expense 50.000 20.000 70.000
Other Expenses 40.000 15.000 55.000
Dividends Declared 60.000 30.000 30.000 60.000
Cash 264.000 75.000 339.000
Accounts Receivable 75.000 50.000 125.000
Inventory 100.000 75.000 175.000
Investment in Special Foods 256.000 - 24.000 280.000 -
Land 175.000 40.000 215.000
Buildings & Equipment 800.000 600.000 300.000 1.100.000
Accumulated Depreciation (450.000) (320.000) 300.000 (470.000)
Accounts Payable (100.000) (100.000) (200.000)
Bonds Payable (200.000) (100.000) (300.000)
Common Stock (500.000) (200.000) 200.000 (500.000)
Retained Earnings (beginning) (300.000) (100.000) 100.000 (300.000)
Non Controlling Interest - - 6.000 60.000 (54.000)
- - 680.000 680.000 -
14
Consolidation Entries (Eliminations)
Common stock 200,000 -
Retained earning (beginning) 100,000 -
Investment in SF stock - 240,000
Non controlling interest - 60,000
Sales 10,000 -
Cost of good sold - 10,000
15
Consolidation Worksheet — 20X1 (Cost Method)
- another approach
Special Consolidation Entries
Peerless Foods Dr Cr Consolidated
Sales (400.000) (200.000) 10.000 (590.000)
Dividend Income (24.000) - 24.000 -
Cost of good sold 170.000 115.000 10.000 275.000
Depreciation Expense 50.000 20.000 70.000
Other Expenses 40.000 15.000 55.000
Dividends Declared 60.000 30.000 30.000 60.000
Cash 264.000 75.000 339.000
Accounts Receivable 75.000 50.000 125.000
Inventory 100.000 75.000 175.000
Investment in Special Foods 240.000 - 240.000 -
Land 175.000 40.000 215.000
Buildings & Equipment 800.000 600.000 300.000 1.100.000
Accumulated Depreciation (450.000) (320.000) 300.000 (470.000)
Accounts Payable (100.000) (100.000) (200.000)
Bonds Payable (200.000) (100.000) (300.000)
Common Stock (500.000) (200.000) 200.000 (500.000)
Retained Earnings (beginning) (300.000) (100.000) 100.000 (300.000)
Non Controlling Interest - - 6.000 60.000 (54.000)
- - 640.000 640.000 -
16
Consolidation Entries (Eliminations)
Common stock 200,000 -
Retained earning (beginning) 100,000 -
Investment in SF stock - 240,000
Non controlling interest - 60,000
Sales 10,000 -
Cost of good sold - 10,000
17
Peerless & Subsidiary
Consolidated Income Statement & Retained Earning
Year 20X1
Sales 590,000
Cost of good sold (275,000)
Depreciation expense (70,000)
Other expenses (55,000)
Net profit 190,000
Net profit attributed to:
Controlling interest 180,000
Non controlling interest 10,000
18
Peerless & Subsidiary
Consolidated Statement of Financial Position
Dec 31, 20X1
Assets: Liabilities:
Cash 339,000 Accounts Payable 200,000
Accounts Receivable 125,000 Bonds Payable 300,000
Inventory 175,000 Equity:
Land 215,000 Common Stock 500,000
Buildings & Equipment 1,100,000 Retained Earnings 420,000
Accumulated Depreciation (470,000) Non Controlling Interest 64,000
19
DOWNSTREAM SALE OF INVENTORY
• Peerless Products Corporation purchases 80 percent of Special Foods Inc.’s stock on
December 31, 20X0, at the stock’s book value of $240,000. The fair value of Special Foods’
non controlling interest on that date is $60,000, the book value of those shares.
• On April, 20X1, Peerless sale inventory to Special Foods for $10,000. Cost of the inventory
is $7,000
• On January 2, 20X2, Special Foods sells the inventory purchased from Peerless to a
nonaffiliated party for $15,000.
• During 20X1, Peerless reports separate income of $140,000 income from regular
operations and declares dividends of $60,000. Special Foods reports net income of
$50,000 and declares dividends of $30,000.
20
Journal in Peerless’s Books:
21
Journal in Special Food’s Books:
22
DOWNSTREAM SALE OF INVENTORY
Special Elimination
Peerless Consolidated
Food Debit Credit
Sales (10.000) - 10.000 - 0
COGS 7.000 - - 7.000 0
Inventory - 10.000 - 3.000 7.000
23
Consolidation Worksheet — 20X1 (Equity method)
24
Consolidation Worksheet — 20X1 (Equity method)
25
Consolidation Worksheet — 20X1 (Full adjusted equity
method)
26
Consolidation Worksheet — 20X1 (Full adjusted equity
method)
27
Consolidation Worksheet — 20X1 (Cost Method)
28
Consolidation Worksheet — 20X1 (Cost Method)
29
Consolidation Worksheet — 20X2 (Full adjusted equity
method)
30
Consolidation Worksheet — 20X2 (Full adjusted equity
method)
31
UPSTREAM SALE OF INVENTORY
• Peerless Products Corporation purchases 80 percent of Special Foods Inc.’s stock on
December 31, 20X0, at the stock’s book value of $240,000. The fair value of Special Foods’
non controlling interest on that date is $60,000, the book value of those shares.
• On April, 20X1, Special Foods sale inventory to Peerless for $10,000. Cost of the inventory
is $7,000
• On January 2, 20X2, Peerless sells the inventory purchased from Special Foods to a
nonaffiliated party for $15,000.
• During 20X1, Peerless reports separate income of $140,000 income from regular
operations and declares dividends of $60,000. Special Foods reports net income of
$50,000 and declares dividends of $30,000.
32
Journal in Peerless’s Books:
33
Journal in Special Food’s Books:
34
Consolidation Worksheet — 20X1 (Equity method)
35
Consolidation Worksheet — 20X1 (Equity method)
36
Consolidation Worksheet — 20X1 (Full adjusted equity
method)
37
Consolidation Worksheet — 20X1 (Full adjusted equity
method)
38
Consolidation Worksheet — 20X1 (Cost Method)
39
Consolidation Worksheet — 20X1 (Cost Method)
40
Peerless & Subsidiary
Consolidated Income Statement & Retained Earning
Year 20X1
Sales 590,000
Cost of good sold (278,000)
Depreciation expense (70,000)
Other expenses (55,000)
Net profit 187,000
Net profit attributed to:
Controlling interest 177,600
Non controlling interest 9,400
41
Peerless & Subsidiary
Consolidated Statement of Financial Position
Dec 31, 20X1
Assets: Liabilities:
Cash 339,000 Accounts Payable 200,000
Accounts Receivable 125,000 Bonds Payable 300,000
Inventory 172,000 Equity:
Land 215,000 Common Stock 500,000
Buildings & Equipment 1,100,000 Retained Earnings 417,600
Accumulated Depreciation (470,000) Non Controlling Interest 63,400
42
Consolidation Worksheet — 20X2 (Full adjusted equity
method)
43
Consolidation Worksheet — 20X2 (Full adjusted equity
method)
44