FAR 4_06

  1. What types of payables or receivables must be eliminated through consolidating entries?
    • Any inter-entity transactions that may include…
    • Accounts payable / accounts receivable
    • Bonds payable / bond investment
    • Bond interest payable / accrued bond interest receivable
    • Dividend payable / dividends receivable
  2. The parent sold inventory to the subsidiary. What are the 3 main steps to consolidation?
    • Step 1: Eliminate the remaining balances (end of period) of any payable / receivable
    • Step 2: Determine the profit allocation between the sub’s COGS and remaining inventory
    • Step 3: Eliminate the sale, parent’s COGS, and allocate the profit to the sub’s COGS and remaining inventory
  3. CALCULATION: On Dec 31, parent issued bonds to outside investors with a carrying value of $300,000 and face value of $250,000. Before any other adjustments were made, the subsidiary purchased all the bonds from the investors for $275,000. (1) How are these bonds treated on the market? (2) What are the journal entries for consolidation?
    • The market considers these bonds retired, with a gain/loss recognized on the extinguishment of debt, even though they continued to be carried on the books of the parent and sub.
    • [DR] Bonds Payable = $250,000
    • [DR] Premium = $50,000
    • … [CR] Investment in Bonds = $275,000
    • … [CR] Gain on Extinguishment of Bonds = $25,000
  4. CALCULATION: On July 1, parent sold a piece of land to the subsidiary for $200,000. The initial cost of the land was $175,000. What are the journal entries for consolidation in the year of purchase? In subsequent years?
    • Year of Purchase
    • [DR] Intercompany gain on sale of land = $25,000
    • … [CR] Land = $25,000
    • Subsequent Years
    • [DR] Retained Earnings = $25,000
    • … [CR] Land = $25,000
  5. CALCULATION: The subsidiary sold a depreciable fixed asset (equipment) to the parent for $100,000. The equipment had an original cost of $90,000 and accumulated depreciation of $20,000, with a remaining life of 10 years. What are the consolidating entries for (1) the year of purchase? (2) the subsequent year?
    • Entry to adjust the purchase itself in the year of purchase
    • [DR] Gain on sale of machine = $30,000
    • … [CR] Machine = $10,000
    • … [CR] Accumulated Depreciation = $20,000
    • Entry to adjust the accumulated depreciation
    • [DR] Accumulated Depreciation = $3,000
    • … [CR] Depreciation Expense = $3,000
    • Entries in the subsequent year
    • [DR] Retained Earnings = $27,000 (Gain of $30 – Dep Exp of $3)
    • … [CR] Machine $10,000
    • … [CR] Accumulated Depreciation = $17,000 (initial entry of $20 – depreciation adjust $3)
    • [DR] Accumulated Depreciation = $3,000
    • … [CR] Depreciation Expense = $3,000
  6. When given a consolidated statement w/o the adjusting entries, how would you determine (1) the sales between entities, (2) the COGS between entities
    • (1) Total sales of both entities - consolidated sales = amount sold between the entities.
    • (2) Total COGS of both entities - COGS from portion sold to the buying entity - profit portion sold to outside parties
  7. When given a consolidated statement w/o the adjusting entries, how would you determine (1) balance of the sub's A/P acct, (2) amount of unrealized profit?
    • (1) total A/R of both entities - consolidated A/R = amount of A/R adjusted which is also the amount of A/P adjusted.
    • (2) The unrealized profit is the amount left in inventory. Total inventory of both entities - consolidated inventory = amount of profit remaining in inventory (unrealized profit).
  8. On a consolidated balance sheet current assets must be reduced by what amounts?
    • The unsold inventory from inter-entity purchases.
    • Total inventory of both entities - consolidated inventory = inventory remaining. This amount reduces the current assets.
  9. If you take the total inventory of both entities - consolidated inventory it equals the profit remaining in ending inventory. How would you determine the carrying amount of the inventory?
    • Determine sales: The carrying profit remaining / profit margin
    • Determine COG (carrying amount): Sales amt x (1-profit margin).
  10. How would you calculate the gross profit for the consolidated income statement?
    • Total combined sales for both entities - sales from seller
    • - COGS calculated as total combined COGS - COGS from seller - profit portion assigned to ending inventory
    • = gross profit of consolidated
Author
BethM
ID
338214
Card Set
FAR 4_06
Description
Becker Review 2018
Updated