Advanced financial chapter 5

In preparing consolidated financial statments when intra-entity gross profits remain in ending inventory,consolidated Entry G debits COGS because:

-The ending inventory component of cogs is overstated by the intra-entity gross profit remaining at year end -The debit to COGS reduces consolidate net income by the amount of the intra-entity gross profit

Gross profits frequently exist inending inventory resulting from intra-entity inventory transfers. These gross profits are (blank) any preparation of consolidated financial statements

Eliminated

In preparing consolidated financial statements when intra-entity gross profits remain in ending inventory, Consolidation entry G credit 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 inventory transfers...

Must be Identified and removed as part of the process of preparing consolidated financial statements

Because consolidation worksheet entries are not posted to any affiliates individual accounting records, infra-entity ending inventory gross profits from the previous year appear in the subsequent years beginning Inventory of the affiliate who now possesses the inventory. To correct for the presence of infra-intity gross profits and beginning inventory consolidation entry G.

Reduces COGS

The purpose of consolidated entry TI is to

Removes the Effects of Intra-entity sales and purchases for the consolidated reporting entity

When an intra-entity sale has occurred consolidation worksheet entry TI removes both the related purchase (through a credit to COGS) and a debit to the related BLANK account

Sales

Companies within a consolidated entity often sell inventory to each other. The sale price of the intra-entity transfer is sometimes based on

-A predetermined markup above cost -an agreement between the affected entities -The normal sales price of the inventory agreement

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

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

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

Zero

-Produce accounting effects that are eliminated in the preparation of consolidation financial statments -Create neither profit nor losses to the consolidated entity