1

Baker / Lembke / King

6
Intercorporate
Transfers:
Noncurrent
Assets
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© The McGraw-Hill
Companies,
Companies,
Inc., 1999 Inc., 1999
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Transactions of Affiliated Companies

Parent
Company

Subsidiary Subsidiary
A B

Consolidated Entity
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Intercorporate Sales
Consolidated Entity

Parent Subsidiary
Company Corporation

Purchase Sale/Purchase Sale of

of $10,000 of $15,000 $25,000

Gain of Gain of
$5,000 $10,000

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Intercorporate Sales
If Consolidated
all three transactions
Entity are completed
in the same accounting period, the
parent records a gain of $5,000, the
subsidiary $10,000, and the consolidated
entity reports $15,000.

Parent Subsidiary
Company Corporation

Purchase Sale/Purchase Sale of

of $10,000 of $15,000 $25,000

Gain of Gain of
$5,000 $10,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Intercorporate Sales
Consolidated Entity
However, if only the $10,000 purchase is
completed during the current period,
no gain is recognized anywhere.

Parent Subsidiary
Company Corporation

Purchase Sale/Purchase Sale of

of $10,000 of $15,000 $25,000

Gain of Gain of
$5,000 $10,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Intercorporate Sales
Consolidated
If the Entityby the parent
$10,000 purchase
and the eventual sale to the subsidiary
are made in the current year, the parent
reports a gain of $5,000. However, no gain
is reported by the consolidated entity.
Parent Subsidiary
Company Corporation

Purchase Sale/Purchase Sale of

of $10,000 of $15,000 $25,000

Gain of Gain of
$5,000 $10,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 7
Intercorporate Sales
Consolidated Entity
If only the sale by the subsidiary occurs
during the current year, then the
subsidiary reports a gain of $10,000 and
the consolidated unit reports $15,000.

Parent Subsidiary
Company Corporation

Purchase Sale/Purchase Sale of

of $10,000 of $15,000 $25,000

Gain of Gain of
$5,000 $10,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of Land

January 1, Peerless Special

19X1 Products Foods

Purchased
Jan. 1 Land 20,000
land for
Cash 20,000
$20,000
Record purchase
of land.

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
 9
Downstream Sale of Land
July 1 Cash 35,000
Land 20,000
Gain on Sale
of Land 15,000
Record sale of (PEERLESS
land. PRODUCTS)
Peerless Special
Products July 1, 19X1 Foods

Intercorporate
transfer of land
$35,000

Consolidated Entity
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 10
Downstream Sale of Land
July 1 Land 35,000
Cash 35,000
Record purchase
of land from (SPECIAL
Peerless. FOODS)

Peerless Special
Products July 1, 19X1 Foods

Intercorporate
transfer of land
$35,000

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Income from
Subsidiary 40,000

Dividends
Declared. (60,000) (30,000)

Investment in
Special Foods 256,000

An entry is needed to eliminate the changes in

Peerless’s investment account for the year, the income
from Special Foods recognized by Peerless, and
Peerless’s share of Special Foods’ dividends.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Income from
Subsidiary 40,000 40,000

Dividends
Declared (60,000) (30,000) 24,000

Investment in
Special Foods 256,000 16,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income from
Noncontrolling
Interest

Dividends
Declared (60,000) (30,000) 24,000

Noncontrolling
Interest

An entry is necessary to assign a share of Special Foods’

income to the noncontrolling stockholders and eliminate
their share of Special Foods’ dividends.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income from
Noncontrolling
Interest 10,000 (10,000)

Dividends
Declared. (60,000) (30,000) 24,000
6,000 (60,000)
Noncontrolling
Interest 4,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Retained
Earnings, Jan. 1 300,000 100,000

Investment in
Special Foods 268,000

Common Stock 500,000 200,000

Noncontrolling
Interest 4,000

An entry is required to eliminate the

beginning investment balance.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Retained
Earnings, Jan. 1 300,000 100,000 100,000 300,000

Investment in
Special Foods 268,000 28,000
240,000
Common Stock 500,000 200,000 200,000 500,000

Noncontrolling
Interest 4,000
60,000 64,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Gain on Sale of
Land 15,000

Land 155,000 75,000

An entry is needed to eliminate the unrealized gain

on the intercompany sale of the land.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of Land

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Gain on Sale of
Land 15,000 15,000

Land 155,000 75,000 15,000 215,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of a Depreciable Asset

December 31, Peerless Special

19W8 Products Foods

Purchase
equipment
for $9,000

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special
December 31,
Products 19X1 Foods

Intercorporate
transfer of
equipment
$7,000

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special
December 31,
Products 19X1 Foods

Intercorporate
Dec. 31 Equipment 7,000
transfer of
Cash 7,000
equipment
Record purchase (SPECIAL
$7,000
of equipment. FOODS)

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special
December 31,
Products 19X1 Foods

Intercorporate
Dec. 31 Depr. Expense 900
transfer of
Accum. Depr. 900
equipment
Record depreciation
$7,000
on equipment sold. (PEERLESS)

Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special
December 31,
Products 19X1 Foods
Dec. 31 Cash 7,000
Accum.Intercorporate
Depr. 2,700
Equipment
transfer of 9,000
Gain onequipment
Sale of
Equipment$7,000 700
Record sale of
equipment. (PEERLESS)
Consolidated Entity
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
 24
Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income from
Subsidiary 40,000

Dividends
Declared (60,000) (30,000)

Investment in
Special Foods 256,000

An entry is needed to eliminate the income and dividends

from Special Foods recognized by Peerless and the change
in the investment account for the year.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
 25
Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income from
Subsidiary 40,000 40,000

Dividends
Declared (60,000) (30,000) 24,000

Investment in
Special Foods 256,000 16,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income to Non-
controlling
Interest

Dividends
Declared (60,000) (30,000) 24,000

Noncontrolling
Interest

An entry is required to assign income

to noncontrolling interest.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 27
Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Income to Non-
controlling
Interest 10,000

Dividends
Declared (60,000) (30,000) 24,000
6,000 (60,000)
Noncontrolling
Interest 4,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Retained Earn.,
January 1 300,000 100,000

Investment in
Special Foods 256,000 16,000

Common Stock 500,000 200,000

Noncontrolling
Interest 4,000

The stockholders’ equity accounts of Special

Foods and the investment account as of the
beginning of the year need to be eliminated.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Retained Earn.,
January 1 300,000 100,000 100,000 300,000

Investment in
Special Foods 256,000 16,000
240,000
Common Stock 500,000 200,000 200,000 500,000

Noncontrolling
Interest 4,000
60,000 64,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Gain on Sale of
Equipment 700

Buildings and
Equipment 791,000 607,000

Accumulated
Depreciation 447,300 320,000

The unrealized gain on downstream sale

of equipment needs eliminating.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Downstream Sale of a Depreciable Asset

Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated

Gain on Sale of
Equipment 700 700

Buildings and
Equipment 791,000 607,000 2,000 1,400,000

Accumulated
Depreciation 447,300 320,000 2,700 770,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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Chapter Six

The
End

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999