Intuition
What are the effects of not removing intercompany transactions?
Overstated inventory and overstated gross profit?
Will any of the [I] entries be on the consolidated financial statements?
No
Will the consolidated financial statements look different under the cost method as they do under the equity?
No the financial statements will look exactly the same.
When the subsidiary sells inventory to the parent?
Upstream
What is the accounting equation?
Assets= Liabilities + Equity
In the case of wholly owned subsidiaries, what are the difference in [I] consolidating entries for upstream versus downstream transactions?
There are none
What is the purpose of the consolidation entry regarding the intercompany sale of non-depreciable assets (land)?
To make consolidated net income the same as it would have been had the sale not occurred.
Under the cost method all of the elimination entries are almost the same except for which entry?
The adj entry
What is the acronym used for the consolidation entries?
CEADI
Who won last Thursday night Game
The Green Bay Packers
What is a common motive for business combinations?
So companies can control a greater share of the market.
What is the formula for the amount of gross profit to recognize each year?
$Total deferred profit * % of unsold inventory.
Fill in the blank: what is the account credited on the[I gain] journal entry in the year of sale of a non-depreciable asset using the cost method?
CR: Land
The process of combining the financial statements of a parent and subsidiary?
Consolidation
Who did Justin Bieber marry in 2018?
Hailey Baldwin
What are we doing when we say,"We report the asset on the consolidated balance sheet at the pre-intercompany-transaction carrying value"?
We are returning the asset back to its historical cost.
When do we recognize the gross profit on the intercompany sale of land?
When we sell the land to a non affiliated party.
One of the effects of eliminating intercompany profits from ending inventory is to?
To increase COGS
A type of transaction that occurs when the parent company sells inventory to the subsidiary?
Downstream
What holiday is supposed to be observed today?
Veterans Day
When preparing consolidated financial statements, what is the main reason we eliminate all intercompany transactions between and among a parent company and its subsidiaries?
Controlled affiliates represent a single economic entity, and an entity cannot engage in economically substantive transactions with itself (parents cannot recognize transactions with subsidiaries it owns)
For the continuous sale of inventory what are the inventory-related adjustments we have to make (HINT:remember the continuous inventory slide).
1)Recognize the profit we deferred in the previous year,
2) Eliminate current-year intercompany sales/purchase transactions, and
3) Defer the profit for the current year’s sales of inventories
What is the advantage of using the cost method for the pre-consolidation process?
The advantage of the cost method is that it is easy to apply to the pre-consolidation parent company books and results in the most efficient consolidation process.
A transaction that occurs between the parent and the subsidiary?
Intercompany transaction
What other celebrity ran for the office of POTUS this year?
Kanye West