Final

The direction of intra-entity sales (upstream or downstream) does not affect the final balance of reported consolidated net income.

True, the direction of intra-entity transfers affects only the distribution of consolidated net income to the controlling and noncontrolling interest, not the amount of consolidated net income.

When the parent applies the equity method and routinely transfers inventory downstream, Consolidation Entry &#002A; G involves a credit to COGS to recognize the intra-entity gross profit in beginning inventory and a debit to

the investment in Subsidiary account.

When the parent applies the equity method and routinely transfers inventory downstream, Consolidation Entry *G involves a credit to COGS to recognize the intra-entity gross profit in beginning inventory and a debit to

the investment in subsidiary account

In the presence of upstream intra-entity inventory transfers, from a consolidated view which of the following accounts becomes overstated in the year following the transfer?

The subsidiary's retained earnings.

To measure appropriately the effect of intra-entity inventory profits on the noncontrolling interest, the direction of the intra-entity transfer (upstream or downstream) should be considered.

True, downstream transfers only affect the parent company net income and thus no allocation is made to the noncontrolling interest. Upstream sales affect the subsidiary company's net income which is attributable to both the parent and the noncontrolling interest.

When the parent applies the equity method and routinely receives upstream inventory transfers from a subsidiary, Consolidation Entry *G involves a credit to COGS to recognize the intra-entity gross profit in beginning inventory and a debit to

the subsidiary's retained earnings

When the parent applies the equity method and routinely transfers inventory downstream, which of the following consolidation entries are sometimes needed to bring the Investment in Subsidiary account to a zero balance?

(G) for intra-entity gross profits in beginning inventory. (D) for the parent's share of subsidiary dividends declared. (I) for the equity in subsidiary earnings recognized by the parent.

When the parent applies the equity method and routinely transfers inventory downstream, which of the following consolidation entries are sometimes needed to bring the investment in Subsidiary account to a zero balance?

(G) for intra-entity gross profits in beginning inventory. (I) for the equity in subsidiary earnings recognized by the parent. (D) for the parent's share of subsidiary dividends declared.

Which of the following Consolidation Entries has the net effect of increasing the current period's consolidated net income?

*G

Which of the following Consolidation Entries has the net effect of decreasing the current period's consolidated net income?

G

When the parent applies the equity method and routinely transfers inventory downstream to its 80% owned subsidiary, any intra-entity gross profits remaining in the consolidated entity's ending inventory,

are allocated 100% to the parent company's share of consolidated net income

By decreasing COGS, Consolidation Entry *G _ consolidated net income.

increases

Gross profits frequently exist in ending inventory resulting from intra-entity inventory transfers. These gross profits are _ in the preparation of consolidated financial statements.

removed

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory. Consolidated Entry G credits Inventory because

From a consolidated perspective, the account is overstated by the amount of the intra-entity gross profit remaining in ending inventory.

Which of the following consolidated balances remain the same regardless of whether intra-entity gross profit in inventory results from upstream or downstream transfers?

Inventory and consolidated net income

Why does Consolidation Entry *G debit the parent's Investment in Subsidiary account instead of its Retained Earnings account for downstream intra-entity gross profits in beginning inventory when the parent employs the equity method?

The equity method removes intra-entity gross profits from the parent's books causing its RE to properly reflect the consolidated balance. The debit to the Investment account is needed to bring the account to a zero balance in consolidation.

How does consolidation entry &#002a:G differ when the intra-entity gross profit resulted from downstream transfers and the parent uses the equity method for its investment in its subsidiary?

The investment in subsidiary account is debited instead of the parent's retained earnings account.

When intra-entity gross profits from upstream sales are present in beginning inventory, which of the following describes the effect on consolidated statements?

The net income effect of the intra-entity inventory gross profit is transferred from the prior period to the current period. Consolidation Entry *G credits COGS which increases current period's consolidated net income.

What is the reason Consolidation Entry *G credits COGS for the intra-entity gross profit present in beginning inventory?

To correct for the overstatement of the beginning inventory component of COGS. Because the credit to COGS increases the net income of the consolidated entity in the year the inventory is sold to outsiders

How does the direction of intra-entity transfers (resulting in intra-entity gross profit in inventories) affect the computation of the noncontrolling interest's share of consolidated net income

Upstream inventory transfers affect the computation.

A parent transfers inventory with a cost of $25,000 to its subsidiary at a transfer price of $40,000. The subsidiary resold the entire purchase to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G?

Zero

What is the primary reason we defer financial statement recognition of gross profits and intra-entity sales for goods that remain within the consolidated entity at year-end?

When intra-entity sales remain in ending inventory, control of the goods has not changed.

When the parent applies the equity method and routinely transfers inventory downstream, any intra-entity gross profits remaining in the consolidated entity's ending inventory.

does not effect the noncontrolling interest

In preparing consolidated financial statements, the gross profit or loss recorded by individual affiliates for intra-entity asset transfers is

excluded from inventory in the consolidated balance sheet excluded from net income

The accounting effects of inventory sales across companies within a consolidated entity are removed when preparing consolidated financial statements because

intra-entity inventory transfers create no net change in the financial position of the consolidated reporting entity. consolidated statements reflect only transactions with outside parties. from a consolidated perspective, neither a sale nor a purchase has occurred.

Because the individual companies comprising a consolidated entity frequently maintain separate accounting records, the effects of intra-entity inventory transfers

must be identified and removed as part of the process of preparing consolidated financial statements

When the parent applies the equity method and routinely transfers inventory downstream to its 80% owned subsidiary, any intra-entity gross profits remaining in the consolidated entity's ending inventory.

are allocated 100% to the parent company's share of consolidated net income.

When intra-entity gross profits exist in a parent company's beginning inventory, the current year consolidated worksheet should contain an entry to

remove the intra-entity gross profit from the seller's beginning retained earnings.

How does the ASC describe the effect of intra-entity gross profit remaining in ending inventory on the noncontrolling interest?

Any intra-entity income or loss may be allocated between the parent and noncontrolling interest.

How do gross profits resulting from upstream inventory transfers affect the computation of consolidated net income attributable to the noncontrolling interest?

Beginning inventory gross profits increase the noncontrolling interest's share of consolidated net income. Ending inventory gross profits decrease the noncontrolling interest's share of consolidated net income.

When intra-entity gross profits from upstream sales are present in beginning inventory,

Consolidation Entry &#002A; G credits COGS which increases current period's consolidated net income. The net income effect of the intra-entity inventory gross profit is transferred from the prior period to the current period.

TI

Consolidation TI both increases and decreases consolidated net income by the same amount thus producing a zero net effect.

A parent transfers inventory with a cost of $25,000 to its subsidiary at a transfer price of $40,000. The subsidiary resold 50% of this transferred inventory to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G?

$40,000-25,000= $15,000 x 50% = $7,5000

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $170,000. At December 31, 50 percent of this merchandise remains in James's inventory. Gross profit percentages were 30 percent for James and 40 percent for Carl. The amount of unrealized intra-entity profit in ending inventory at December 31 that should be eliminated in the consolidation process is

Merchandise remaining in James's inventory $170,000 x 50%=$85,000 Intra entity gross profit (based on subsidiary's gross profit rate as the seller) $85,000 x 40% = $34,000 James's ownership percentage of Carl has no impact on this computation.

Inventory transfers among affiliates within a consolidated entity

produce accounting effects that are eliminated in the preparation of consolidated financial statements create neither profits nor losses to the consolidated entity.

In computing the noncontrolling interest's share of consolidated net income, how should the subsidiary's net income be adjusted for intra-entity transfers?

The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.

Intra-entity inventory profits resulting from upstream transfers affect the consolidated net income allocation to both the controlling and noncontrolling interests.

True, intra-entity inventory profits resulting from upstream transfers result from the subsidiary's selling activities thus affecting the noncontrolling owners of the subsidiary.