Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6-8
E6-1
LO 6-3,
LO 6-4
15 min.
E
Multiple-Choice Questions on Intercompany Inventory Transfers
[AICPA Adapted] Six multiple-choice questions cover issues associated with the
valuation of inventory and determination of consolidated net income following
intercompany inventory transfers.
E6-2
LO 6-3
15 min.
E
Multiple-Choice Questions on the Effects of Inventory Transfers
[AICPA Adapted] Six multiple-choice questions require the analysis of partial
financial statement data to answer questions on the effects of inventory transfers
and amortization of differential.
E6-3
LO 6-3
10 min.
E
Multiple-Choice Questions-Consolidated Income Statement
Three multiple-choice questions have been developed to test the student’s basic
understanding of the consolidation process following a downstream sale of
inventory and resale to a nonaffiliate prior to the end of period.
E6-4
LO 6-4
15 min.
E
Multiple-Choice Questions-Consolidated Balances
Four multiple-choice questions have been developed to cover an upstream
inventory sale with resale of a portion of the inventory to a nonaffiliate prior to
the end of the year.
E6-5
LO 6-3
10 min.
E
Multiple-Choice Questions-Consolidated Income Statement
Three multiple-choice questions cover the computation of consolidated cost of
goods sold, consolidated net income, and income assigned to noncontrolling
interest when inventory is purchased by the parent and partially resold to the
subsidiary prior to the end of the year.
E6-6
LO 6-3
15 min.
E
Realized Profit on Intercompany Sale
Students must prepare the journal entries made by parent and subsidiary for
intercompany sales of inventory and sales to outside parties. In addition, work
paper consolidation entries must be prepared.
E6-7
LO 6-3
15 min.
E
Sale of Inventory to Subsidiary
Students must prepare the journal entries made by parent and subsidiary for
intercompany sales and sales to outside parties of part of the inventory. In
addition, work paper consolidation entries must be prepared.
E6-8
LO 6-3
25 min.
M
Inventory Transfer between Parent and Subsidiary
A downstream sale of inventory partially remains in inventory at the end of the
year of sale. Students must calculate cost of goods sold recorded by the parent,
subsidiary, and consolidated entity. In addition, work paper consolidation entries
must be prepared for two years given two different sales price scenarios.
Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6-9
E6-9
LO 6-4
15 min.
M
Income Statement Effects of Unrealized Profit
Consolidated cost of goods sold, consolidated net income and income to
controlling interest must be computed and the consolidation entries must be
prepared to remove the effects of an upstream sale of inventory. The cost of
inventory must be computed on the basis of the markup rate and sales prices
given.
E6-10
LO 6-4
15 min.
M
Prior-Period Unrealized Inventory Profit
Consolidated cost of goods sold, consolidated net income and income to
controlling interest must be computed and the consolidation entry must be
prepared when unrealized inventory profits at the start of the current year are
realized during the year.
E6-11
LO 6-3,
LO 6-4
20 min.
M
Computation of Consolidated Income Statement Data
Income statement data for the parent and subsidiary are given. Both upstream and
downstream sales result in unrealized profits at year-end. Consolidated sales, cost
of goods sold, income to noncontrolling interest, and income to controlling
interest are computed.
E6-12
LO 6-3,
LO 6-4
20 min.
M
Intercompany Sales
Upstream and downstream sales are given for two years. Students are required to
calculate consolidated net income, consolidated cost of goods sold arising from
these transactions, the inventory balance reported in the consolidated balance
sheet and income to controlling interest.
E6-13
LO 6-3,
LO 6-4
25 min.
M
Consolidated Balance Sheet Worksheet
Consolidation entries and a consolidated balance sheet worksheet are required.
The inventories held by the parent and subsidiary contain unrealized inventory
profits at the balance sheet date.
E6-14
LO 6-5
15 min.
M
Multiple Transfers between Affiliates
Inventory is sold by the parent to a majority-owned subsidiary at a profit. The
subsidiary sells the inventory to a second majority-owned subsidiary at its cost. A
portion of the inventory is then sold to unrelated parties prior to the end of the
year. Journal entries recorded by each company and the related consolidation
entry at the end of the year are required. Also, students are required to compute
cost of goods sold and inventory to be reported in the consolidated financial
statements.
E6-15
LO 6-4
15 min.
E
Inventory Sales
The journal entries that were recorded by the parent and subsidiary and the
appropriate consolidation entries at the end of the period must be prepared for an
upstream inventory sale.
Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6–10
E6-16
LO 6-4
15 min.
E
Prior-Period Inventory Profits
Consolidation entries must be prepared and the income assigned to the
noncontrolling interest must be calculated relating to upstream inventory sales in
the current and prior years.
P6-17
LO 6-4
15 min.
M
Consolidated Income Statement Data
Selected income statement data are provided for the parent, subsidiary, and
consolidated entity, along with information on an intercorporate inventory
transfer. Four questions deal with consolidated totals and the consolidation
entries required to prepare consolidated statements.
P6-18
LO 6-4
20 min.
M
Unrealized Profit on Upstream Sales
Abbreviated information on the parent and subsidiary is provided for a three-year
period. Consolidated net income and income assigned to noncontrolling interest
must be computed.
P6-19
LO 6-3,
LO 6-4
15 min.
M
Net Income of Consolidated Entity
Information on the differential, operating results, intercorporate sales, and
unrealized profits at the start and end of the period is given. Consolidated net
income and income assigned to controlling interest must be computed.
P6-20
LO 6-4
15 min.
M
Correction of Consolidation Entries
Incorrect consolidation entries are presented at the end of the accounting period
on an upstream inventory transfer. The percentage of inventory resold prior to the
end of the period must be computed and the correct consolidation entries must be
provided.
P6-21
LO 6-3,
LO 6-4
30 min.
H
Incomplete Data
Incomplete balance sheet and income statement data are given for the parent and
subsidiary and the consolidated entity. The students are required to provide
answers to the nine questions that in turn will involve computation of the missing
figures.
P6-22
LO 6-4
25 min.
M
Eliminations for Upstream Sales
Using trial balance information for the parent and subsidiary and information
about intercompany upstream sales, consolidation entries are required for the
consolidation worksheet. Consolidated net income and income to controlling
interest must be computed. Also, students are required to calculate the balance of
noncontrolling interest to be reported in the consolidated balance sheet.
P6-23
LO 6-3,
LO 6-4
25 min.
H
Multiple Inventory Transfers
Prior period and current period inventory transfers between a parent and two
subsidiaries result in unrealized profits at both the beginning and end of the year.
Consolidated net income, income assigned to the noncontrolling interest and
inventory balance to be reported in the consolidated balance sheet are computed.
Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6–11
P6-24
LO 6-3,
LO 6-4
45 min.
H
Consolidation with Inventory Transfers and Other Comprehensive Income
Unrealized inventory profits on upstream and downstream sales are present at
both the beginning and end of the year. In addition, the subsidiary reports other
comprehensive income during the year. Various computations are required and
all consolidation entries needed to prepare a consolidation worksheet at the end
of the year are required.
P6-25
LO 6-3,
LO 6-4
20 min.
M
Multiple Inventory Transfers between Parent and Subsidiary
Prior period and current period upstream and downstream inventory transfers
between the parent and subsidiary result in unrealized profits at both the
beginning and end of the year. Related consolidation entries and the computation
of consolidated cost of goods sold for the year are required.
P6-26
LO 6-3,
LO 6-4
40 min.
M
Consolidation following Inventory Transactions
Trial balances and additional information are given regarding a parent and
subsidiary with both upstream and downstream sales in the current and prior
period. The parent is utilizing the basic equity method in accounting for its
investment. For the current year, journal entries made by the parent relating to its
investments and work paper consolidation entries must be presented. In addition,
a three-part consolidation work paper must be prepared.
P6-27
LO 6-3,
LO 6-4
45 min.
H
Consolidation Worksheet
Consolidation entries, a consolidation worksheet, and a schedule to reconcile the
difference between the parent company’s retained earnings and the consolidated
retained earnings are required for this problem. The problem includes both
intercompany inventory transactions and an intercompany depreciable asset
transaction.
P6-28
LO 6-3,
LO 6-4
25 min.
H
Computation of Consolidated Totals
Consolidated sales, cost of goods sold, net income, income to controlling interest
and the ending inventory balance are computed using partial income statement
and balance sheet information for the parent and subsidiary.
P6-29
LO 6-3,
LO 6-4
60 min.
H
Intercompany Transfer of Inventory
A differential is assigned to buildings and equipment and patent. Unrealized
profit on upstream inventory sales exists at the beginning of the year and
unrealized profit on downstream inventory sales exists at the end of the year.
The subsidiary also reports unrealized profit on an upstream sale of land.
Consolidation entries and a three-part consolidation worksheet are required.
Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6–12
P6-30
LO 6-3,
LO 6-4
50 min.
H
Consolidation Using Financial Statement Data
Beginning and ending balance sheets and current period income statements are
given for the parent and subsidiary. Consolidation entries and a consolidation
worksheet are required. A differential, unrealized profit on a land transfer, and
unrealized inventory profit at the beginning and end of the year occur. Both
upstream and downstream inventory sales have taken place.
P6-31
LO 6-3,
LO 6-4
50 min.
H
Intercorporate Transfer of Inventory
Trial balance data is given for the parent and subsidiary. Various calculations and
consolidation entries and a three-part consolidation worksheet are required. The
subsidiary recorded a loss on sale of equipment to the parent in the prior year.
Unrealized profit on upstream inventory sales exists at both the beginning and
end of the year.
P6-32
LO 6-3
50 min.
M
Consolidated Balance Sheet Worksheet
[AICPA Adapted] A consolidated balance sheet worksheet is required.
Intercompany financing and inventory transactions have taken place.
P6-33
LO 6-4
60 min.
H
Comprehensive Consolidation Worksheet: Fully Adjusted Equity Method
[AICPA Adapted] Partial financial statements data is presented for the parent
and subsidiary company. Intercompany asset transfers and inventory transfers
occur during the year. Students must prepare a comprehensive consolidation
worksheet.
P6-34
LO 6-3,
LO 6-4
60 min.
H
Comprehensive Worksheet Problem
Basic equity method entries in parent’s books, consolidation entries, a
consolidation worksheet, and consolidated financial statements are required. The
problem includes a differential assigned to buildings and equipment, upstream
and downstream inventory transfers resulting in unrealized inventory profits at
the beginning and end of the year, unrealized profit on a prior period
intercorporate sale of equipment, and an intercorporate receivable and payable.
P6-35A
70 min.
H
Modified Equity Method
The adjusting entry needed to convert P6-34 from the basic equity method to the
fully adjusted equity method is presented. An adjusted trial balance, parent
company entries, consolidation entries, and a consolidation worksheet are
required. Differences in the consolidation process between the fully adjusted
equity method and modified equity method are clearly illustrated by working
both P6-34 and P6-35A.
Chapter 06 – INTERCOMPANY INVENTORY TRANSACTIONS
6–13
P6-36A
60 min.
H
Cost Method
Four revised trial balance account totals are presented for P6-34 to convert the
amounts reported by the parent company to the cost method. The journal entries
recorded by the parent in the current period under the cost method, consolidation
entries, and a three-part worksheet are required. Differences in the consolidation
process between the fully adjusted equity method and cost method are clearly
illustrated by working both P6-34 and P6-36A.