19A1 - Advanced Fin. Acc. - Intercompany Inventories Trans.

Intercompany profit elimination entries in consolidation workpapers are prepared in order to:

• nullify the effect of intercompany transactions on consolidated statements.

• defer intercompany profit until realized.

• allocate unrealized profits between controlling and noncontrolling interests.

• reduce consolidated income.

Dul Corporation regularly sells inventory items to its parent, El Corporation. In preparing the consolidated income statement, which of the following items would not be affected by the direction (upstream or downstream) of these intercompany sales?

• Consolidated gross profit

• Noncontrolling interest share

• Controlling interest share of consolidated net income

• Consolidated retained earnings

Pit Corporation sells an inventory item to its subsidiary, Sin Company, to be used as a plant asset by Sin. The workpaper entry to eliminate intercompany profits in the year of sale will not include:

• A debit to sales

• A credit to cost of sales

• A credit to inventories

• A credit to plant assets

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

For consolidated financial statements, intercompany balances and transactions shall be (a)