Ch 5 Adv Fin Accting

when the parent applies the equity method and routinely acquires inventory upstream from a subsidiary, which of the following consolidation entries are sometimes needed to bring the investment in subsidiary account to a zero balance?

1. (I) for the equity in subsidiary earnings recognized by the parent 2. (S) for the subsidiary's beginning stockholder's equity 3. (D) for the parent's share of subsidiary dividends declared

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

for a 40% investment that provides the investor significant influence, 40% of intra entity gross profits in ending inventory from downstream transfers are deferred from the investor's equity earnings when the entity method is applied. if, instead, the investor owns a 70% controlling interest in a subsidiary _______

100% of the intra entity gross profits in ending inventory from downstream transfers are deferred from the investor's equity earnings

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? a. $7,500 b. $20,000 c. $12,500 d. zero

a. $7,500 40,000-25,000=15,000 15,000/40,000=37.5% 40,000*50%=20,000 20,000*37.5%=$7,500

how does the asc describe the effect of intra entity gross profit remaining in ending inventory on the non controlling interest?

any intra entity income or loss may be allocated between the parent and non controlling interest

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 the parent employs the initial value method to account internally for its investment in subsidiary account, a consolidation conversion entry is typically needed. consolidation entry asterisk C converts the parent's beginning RE balance to a full accrual basis. if the subsidiary purchases inventory from the parent and intra entity gross profits exist in its beginning inventory, what is the effect on the consolidation conversion entry (asterisk C)?

downstream intra entity beginning inventory gross profits has no effect on consolidation entry asterisk C

when the parent transfers inventory downstream, none of the intra entity gross profits from the transfer remaining in the subsidiary's ending inventory is allocated to the __________________ interest in computing consolidated net income.

noncontrolling

consolidation entry asterisk G credits cogs because the beginning inventory component of cogs is _________

overstated by the intra entity gross profit

intra entity gross profits in beginning inventory require adjustment in the current consolidation worksheet because the previous year's consolidation entries are never _____________ to the individual affiliates' books

posted

as part of consolidation entry 2, the debit to the subsidiary's RE is reduced due to intra entity gross profits in beginning inventory. What effect does this reduction have on the beginning of the year balance of the non controlling interest?

the beginning balance of the NCI is entered as a smaller amount

compared to the equity method, when the parent uses the initial value method, which consolidation entries for intra entity transfers may differ or additionally be included?

the conversion entry ($*C)

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 (investment in bottom)

true or false the direction of an intra entity inventory transfer (upstream or downstream) does not affect the sales/purchase consolidated worksheet elimination

true

true or false the parent's accounting method choice (e.g. equity or initial value method) has no effect on the ultimate totals reported in consolidated financial statements

true

how does the direction of intra entity transfers (resulting in intra entity gross profit in inventories) affect the computation of the non controlling interest's share of consolidated net income _____

upstream inventory transfers affect the computation

inventory transfers among affiliates within a consolidated entity _________________

1. create neither profits nor losses to the consolidated entity 2. produce accounting effects that are eliminated in the preparation of consolidated financial statements

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?

1. the equity method removes intra entity gross profits from the parent's books causing its RE to properly reflect the consolidated balance 2. the debit to the investment account is needed to bring the account to a zero balance in consolidation

what is the reason consolidation entry & *G credits cogs for the intry entity gross profit present in beginning inventory?

1. to correct for the overstatement of the beginning inventory component of cogs 2. because the credit to cogs increases the net income of the consolidated entity in the year the inventory is sold to outsiders

when an intra entity sale has occurred, consolidation worksheet entry T1 removes both the related purchase (through a credit to cogs) and a debit to the related ___________________ account.

sales

when the parent employs the equity method, consolidation entry asterisk G debits the investment in subsidiary account for intra entity gross profits in beginning inventory that resulted from ______

downstream inventory transfers

gross profits frequently exist in ending inventory resulting from intra entity inventory transfers. these gross profits are _______________ in the preparation of consolidated financial statements

eliminated

in preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, consolidation 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

because the individual companies comprising a consolidated entity frequently maintain separate accounting records, the effects of intra entity transfers __________

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

company A accounts for its investment in subsidiary using the equity method. Company B uses the initial value method. Both companies have intra entity gross profits in their consolidated inventories from downstream sales. Comparing exhibits 5.7 and 5.4 shows ________________ difference in consolidated totals resulting from the investment accounting (equity vs. value) method choice.

no

a parent uses the initial value method, sells inventory to the subsidiary, and intra entity gross profits exist in beginning inventory. what is the effect of the intra entity gross profits in beginning inventory on consolidation entry &*G?

both cogs and the parents's RE are decreased

if the subsidiary sells inventory to the parent and intra entity gross profits exist in beginning inventory, what is the effect on the consolidation conversion entry (&**C) when the parent employs the initial value method?

the presence of intra entity upstream inventory gross profits serves to decrease the amount of the consolidation entry &*C worksheet adjustment

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 RE

which of the following consolidation entries has the net effect of increasing the current period's consolidated net income?

&*G

how does the equity method adjust the parent's equity in earnings account for intra entity gross profits in ending inventory from upstream sales to an 80% owned affiliate?

80% of the intra entity gross profits in ending inventory are deferred

when the parent employs the equity method of accounting for its investment in subsidiary account, in consolidated financial reports the parent's retained earnings account will equal ___________ retained earnings.

consolidated

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

1. inventory 2. consolidated net income

an 80% owned subsidiary transfers inventory to its parent. How much of the intra entity gross profit in the transferred ending inventory serves to reduce the consolidated net income attributable to the non controlling interest?

20% 100% - 80% = 20%