Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7-8
E7-1
LO 7-5,
LO 7-6
15 min.
E
Multiple-Choice Questions on Intercompany Transfers
[AICPA Adapted] Five questions relating to the elimination of unrealized profits
on intercorporate transfers and the valuation of assets are presented.
E7-2
LO 7-2,
LO 7-6
15 min.
E
Multiple-Choice Questions on Intercompany Transactions
Six questions relating to the elimination of unrealized profits on intercorporate
transfers of land and equipment are presented.
E7-3
LO 7-3
10 min.
E
Consolidation Entries for Land Transfer
Consolidation entries relating to unrealized profit on an intercorporate transfer of
land are required at the end of the year of transfer and the subsequent year. Both
an upstream transfer and downstream transfer are considered.
E7-4
LO 7-1,
LO 7-2
15 min
M
Intercompany Services
Student must calculate consolidated income assuming different levels of
ownership. Students also are required to calculate health care costs to subsidiary.
E7-5
LO 7-1,
LO 7-2
10 min.
E
Consolidation Entries for Intercompany Services
Students must prepare the work paper consolidation entries relating to
intercompany services provided by a wholly-owned subsidiary to its parent
company.
E7-6
LO 7-6
15 min.
E
Consolidation Entries for Depreciable Asset Transfer: Year-End Sale
A downstream transfer of a depreciable asset at the end of the period is presented.
Consolidation entries for the year of transfer and the subsequent year are
required.
E7-7
LO 7-4
15 min.
E
Transfer of Land
Two scenarios are presented involving intercompany sales of land. Students must
show the work paper consolidation entries necessary relating to the intercompany
sales.
E7-8
LO 7-5
15 min.
M
Transfer of Depreciable Asset at Year-End
Students are required to show the necessary work paper consolidation entries for
a downstream sale of a depreciable asset for two consecutive years.
E7-9
LO 7-5
15 min.
M
Transfer of Depreciable Asset at Beginning of Year
Students are required to show the necessary work paper consolidation entries for
a downstream sale of a depreciable asset for two consecutive years.
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7-9
E7-10
LO 7-5
20 min.
M
Sale of Equipment to Subsidiary in Current Period
A downstream transfer of a depreciable asset is made at the beginning of the
year. Journal entries recorded by the parent and subsidiary at the time of transfer
and the consolidation entries for the year of transfer and the subsequent year are
required.
E7-11
LO 7-6
20 min.
M
Upstream Sale of Equipment in Prior Period
An upstream transfer of buildings and equipment occurred at the beginning of a
year. Consolidated net income must be computed and the consolidation entry
related to equipment prepared at the end of the third year.
E7-12
LO 7-5
15 min.
M
Consolidation Entries for Midyear Depreciable Asset Transfer
In this exercise, an intercorporate sale of a depreciable asset occurs on July 1.
Consolidation entries at the end of the year of transfer and the subsequent year
are required.
E7-13
LO 7-2
10 min.
E
Consolidated Net Income Computation
Consolidated net income must be computed for the period in which unrealized
profit on an intercorporate sale of land is recorded. Both an upstream and
downstream transfer is considered.
E7-14
LO 7-2,
LO 7-3,
LO 7-4
20 min.
M
Consolidation Entries for Intercompany Transfers
Consolidated net income must be computed and entries prepared for the parent
company and the consolidation worksheet. Intercompany service revenue and
unrealized profit on an upstream transfer of land are included.
E7-15
LO 7-6
25 min.
H
Sale of Building to Parent in Prior Period
An upstream sale of a building occurred at the end of a year. At the end of the
following year, the amount of depreciation expense recorded by the parent,
income assigned to noncontrolling interest, and the balance assigned to the
noncontrolling interest in the consolidated balance sheet must be computed and
the consolidation entry relating to the building must be presented.
E7-16
LO 7-5
10 min.
E
Intercompany Sale at a Loss
Students are required to assess the impact of a downstream transfer of a
depreciable asset at a loss on consolidated net income in the year of the transfer
and the following year.
E7-17
LO 7-6
25 min.
M
Consolidation Entries following Intercompany Sale at a Loss
A loss is recorded on an upstream transfer of a building at year-end. Students
must prepare consolidation entries at the end of the year of transfer and the year
following and compute consolidated net income for each of the years.
E7-18
LO 7-4
60 min.
H
Multiple Transfers of Asset
Land is transferred between several subsidiaries and their parent company.
Students must show the book value of the land, the gain or loss associated with
the land, and income to controlling shareholders reported in the consolidated
financial statements. In addition, students should present any necessary
consolidation entry related to the land.
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7–10
E7-19
LO 7-6
20 min.
M
Consolidation Entry in Period of Transfer
The work paper consolidation entry relating to the upstream sale of a depreciable
asset is given. Based on this entry and additional information relating to the
parent-subsidiary relationship, students are required to calculate the original cost
of the asset and its original estimated economic life. In addition, the necessary
work paper consolidation entry one year after the intercompany sale must be
presented.
E7-20
LO 7-6
15 min.
M
Consolidation Entry Computation
The entry recorded by the subsidiary in selling a depreciable asset to the parent at
the start of the period is given. Consolidation entries at the end of the period and
the subsequent period are required.
E7-21
LO 7-6
25 min.
M
Using the Consolidation Entry to Determine Account Balances
Based on the information given in an entry made at the beginning of the year to
eliminate the effects of an intercorporate transfer of equipment, a series of
questions relating to the direction of sale, the intercompany transfer price, and
income assigned to noncontrolling interest must be answered and consolidation
entries provided for the end of the year.
E7-22
LO 7-1,
L0 7-2
20 min.
M
Intercompany Sale of Services
Consolidation entries to prepare consolidated financials and the determination of
consolidated net income are required in the case of a parent that acquires
management consulting services from its majority-owned subsidiary.
E7-23A
LO 7-3,
LO 7-6
25 min.
M
Modified Equity Method and Cost Method
Data given include an upstream sale of equipment at the end of the preceding
year and a downstream sale of land during the current year. Journal entries
recorded by the parent in the current year and the consolidation entries at the end
of the year are required under the fully adjusted equity method and the cost
method.
P7-24
LO 7-3,
LO 7-4
15 min.
E
Computation of Consolidated Net Income
Consolidated net income is computed for a parent and its majority-owned
subsidiary following an intercorporate land transfer. Both upstream and
downstream cases are considered.
P7-25
LO 7-6
15 min.
M
Subsidiary Net Income
A depreciable asset is sold upstream. Based on the information given, the
subsidiary’s net income, consolidated net income and income to controlling
interest must be calculated.
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7–11
P7-26
LO 7-6
12 min.
M
Transfer of Asset from One Subsidiary to Another
Amounts reported in the income statements and balance sheets of two
subsidiaries and the consolidated entity must be computed following a transfer of
a depreciable asset between subsidiaries.
P7-27
LO 7-6
25 min.
M
Consolidation Entry
A work paper consolidation entry relating to the intercompany sale of a
depreciable asset is shown. Students are required to calculate amounts relating to
this asset and also income to noncontrolling interest.
P7-28
LO 7-4,
LO 7-6
20 min.
M
Multiple-Choice Questions
Four multiple-choice questions test the student’s general understanding of the
elimination process when unrealized profits are involved.
P7-29
LO 7-1,
LO 7-2
10 min.
M
Intercompany Services Provided to Subsidiary
A parent company provides services to its subsidiary. The intercompany
consolidation entries relating to this service must be presented.
P7-30
LO 7-4,
LO 7-5
40 min.
M
Consolidated Net Income with Intercompany Transfers
A variety of both upstream and downstream transactions are presented for which
book entries, consolidation entries, and computations of reported incomes are
required.
P7-31
LO 7-4,
LO 7-5
35 min.
M
Preparation of Consolidated Balance Sheet
A consolidated balance sheet worksheet and consolidated balance sheet must be
prepared assuming a downstream sale of depreciable assets took place two years
earlier and an upstream sale of land in the prior year.
P7-32
LO 7-4,
LO 7-5
60 min.
H
Consolidation Worksheet in Year of Intercompany Transfer
Consolidation entries, a consolidation worksheet, and consolidated statements are
prepared assuming an upstream sale of land, a downstream sale of equipment, an
intercompany receivable and payable, and a differential assigned to goodwill.
P7-33
LO 7-4,
LO 7-5
60 min.
H
Consolidation Worksheet in Year Following Intercompany Transfer
In this problem, trial balance data is given at the end of the second year for the
companies presented in P6-33. Reconciliation of underlying book value and
balance in investment account must be prepared. Also, the consolidation entries
and consolidation worksheet are prepared.
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7–12
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7–13
P7-34
LO 7-4,
LO 7-5
45 min
H
Intercompany Sales in Prior Years
A differential is assigned to patents and buildings and equipment for a majority
owned subsidiary acquired three years earlier. Unrealized profit on a downstream
sale of buildings and an upstream sale of land in prior periods must be
eliminated. Consolidation entries and a three-part worksheet are required.
P7-35
LO 7-3,
LO 7-6
60 min.
H
Intercompany Sale of Land and Depreciable Asset
An upstream sale of depreciable assets and a downstream sale of land occur
between a parent and its partially owned subsidiary. Students are required to
calculate the income to the noncontrolling interest, prepare a reconciliation of the
investment account, prepare all consolidation entries, and prepare a three-part
work paper.
P7-36
LO 7-3,
LO 7-6
40 min.
M
Incomplete Data
Students must compute amounts for missing data using information from the trial
balance data of a parent company and its subsidiary, and the consolidated entity.
P7-37
LO 7-6
40 min.
H
Intercompany Sale of Equipment at a Loss in Prior Period
An upstream intercorporate transfer of equipment was made at a loss two years
prior to the start of the current period. Consolidation entries and a three-part
consolidated working paper are required.
P7-38
LO 7-1,
LO 7-2,
LO 7-3,
LO 7-6
60 min.
H
Comprehensive Problem: Intercompany Transfers
Both upstream and downstream transfers are presented. Students are required to
compute the amount of differential and verify the balance in parent’s investment
account. Consolidation entries and a three-part worksheet are also required for
this comprehensive problem.
P7-39A
LO 7-4,
LO 7-5
25 min.
M
Modified Equity Computation of Retained Earnings following Multiple
Transfers
Consolidated retained earnings must be determined at the beginning and end of
the year. A differential is assigned to equipment and an unrealized gain on an
intercompany sale of land and depreciable assets are included.
Chapter 7 – INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS
7–14
P7-40A
LO 7-1,
LO 7-3,
LO 7-6
55 min.
H
Consolidation Worksheet with Intercompany Transfers (Modified Equity
Method)
Consolidation entries, a consolidation worksheet, and consolidated financial
statements must be prepared assuming a downstream intercompany service, an
upstream intercompany sale of building and a downstream sale of land.
P7-41A
LO 7-6
60 min.
H
Modified Equity Method
The entry needed to convert the data presented in P7-33 to the fully adjusted
equity method is given. An adjusted trial balance, journal entries recorded by the
parent under the fully adjusted equity method, consolidation entries, and a
consolidation worksheet are required.
P7-42A
LO 7-6
60 min.
H
Cost Method
The revised account balances which would be reported on the books of the parent
company under the cost method are given to convert P7-33 to a cost method
problem. Journal entries recorded by the parent under the cost method,
consolidation entries, and a consolidation worksheet are required.