19A2 - Advanced Fin. Acc. - Intercompany Inventories Trans.

The direction of intercompany sales (upstream or downstream) does not affect consolidation workpaper procedures when the intercompany sales between affiliates are made:

• at fair value.

• above market value.

• at book value.

• to a 100 percent-owned subsidiary.

Assume there are routine inventory sales between parent companies and subsidiaries. When preparing the consolidated financial statements, which of the following line items is indifferent to the sales being either upstream or downstream?

• Consolidated retained earnings

• Consolidated gross profit

• Noncontrolling interest share

• Controlling interest share of consolidated net income

Pet Corporation sells inventory items for $500,000 to Sen Corporation, its 80 percent-owned subsidiary. The consolidated workpaper entry to eliminate the effect of this intercompany sale will include a debit to sales for:

• $500,000

• $400,000

• the amount remaining in Sen’s ending inventory

• 80 percent of the amount remaining in Sen’s ending inventory.

An (a)   is a sale by a subsidiary to a parent company.

The impact of (a)   in ending inventory and realizing profits in beginning inventory depends on the direction of the intercompany sales.