a.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The difference between downstream transfers and upstream transfers.
b.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
If the direction of inter-entity transfer affects the application of the equity method.
c.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The computation of inter-entity gross profit deferral in the application of the equity method.
d.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The computation of equity income to be recognized in 2020, and entry made to record this income.
e.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The computation of equity income to be recognized in 2021.
f.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The computation of equity income to be recognized in 2021.
g.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The effect on the application of the equity method if none of the transferred inventory remained at the end of 2020.
h.
Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.
The effect of inter-entity transfers on S’s reporting.
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Chapter 1 Solutions
Advanced Accounting
- Puncho Company is acquiring the net assets of Semos Company in exchange for common stock valued at $900,000. The Semos identifiable net assets have book and fair values of $400,000 and $800,000, respectively. Compare accounting for the acquisition (including assignment of the price paid) by Puncho with accounting for the sale by Semos.arrow_forwardYA Inc. wishes to transfer its equity investments initially classified as fair value through other comprehensive income to profit or loss. On December 31, 2020, the fair value of the investment is P100,000 while on January 1, 2021 which is the date of reclassification, the fair value is P110,000. Assuming that the entity will make the reclassification, how much is the gain to be reported on January 1, 2021 related to the reclassification? A.POB.P110,000C.P100,000D.P10,000arrow_forwardThe following are several figures reported for Allister and Barone as of December 31, 2021: Inventory Sales Investment income Cost of goods sold Operating expenses Allister Barone $ 610,000 $ 410,000 1,220,000 1,020,000 not given 610,000 285,000 510,000 355,000 Allister acquired 90 percent of Barone in January 2020. In allocating the newly acquired subsidiary's fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $78,000 that was unrecorded on its accounting records and had a six- year remaining life. Any remaining excess fair value over Barone's book value was attributed to goodwill. During 2021, Barone sells inventory costing $141,000 to Allister for $202,000. Of this amount, 20 percent remains unsold in Allister's warehouse at year-end. Determine balances for the following items that would appear on Allister's consolidated financial statements for 2021: Inventory Sales Cost of goods sold Operating expenses Net income attributable to…arrow_forward
- The following are several figures reported for Allister and Barone as of December 31, 2021: Allister Inventory Sales Investment income Cost of goods sold Operating expenses $ 620,000 $ Barone 420,000 1,240,000 1,040,000 not given 620,000 290,000 520,000 360,000 Allister acquired 90 percent of Barone in January 2020. In allocating the newly acquired subsidiary's fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $80,000 that was unrecorded on its accounting records and had a four-year remaining life. Any remaining excess fair value over Barone's book value was attributed to goodwill. During 2021, Barone sells inventory costing $142,000 to Allister for $204,000. Of this amount, 10 percent remains unsold in Allister's warehouse at year- end. Determine balances for the following items that would appear on Allister's consolidated financial statements for 2021: Inventory Sales Cost of goods sold Operating expenses Net income attributable to…arrow_forwardIt is a receivable financing activity where the Entire Receivable's ownership is sold to the Factee -Discounting -Pledging -Factoring -Assigning PAS 2 Inventories requires that lower of cost and net realizable value shall be applied -On the basis of industry segment. -On an item-by-item basis. -To total inventories as a whole. -To each class of inventory. A newly admitted general partner is liable to creditors existing at the time of his admission and his liability is -Loss before delivery of a specific thing which a partner had promised to contribute to the partnership. -Loss before delivery of a specific thing where the partner promised to contribute only its use and enjoyment, reserving the ownership thereof. -Loss after delivery of a specific thing where the partner contributed only its use and enjoyment, where such partner reserved the ownership thereof. -Loss of a specific thing after its delivery to and acquisition of its ownership by…arrow_forwardOn May 1, 2021, Jazzie Co. agreed to sell the assets of its Mister Division to Shawna Inc. for $80 million. The sale was completed on December 31, 2021. Jazzie’s year ends on December 31st. The following additional facts pertain to the transaction: The Mister Division qualifies as a component of an entity as defined by GAAP. Mister's net assets totaled $48 million on Jazzie's books at the time of the sale. Mister incurred a pre-tax operating loss of $10 million in 2021. Jazzie’s income tax rate is 40%. Suppose that the Mister Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In their 2021 income statement, Jazzie Co. would report for discontinued operations: Group of answer choices a $6 million after tax loss. a $10 million after tax loss after tax income of $13.2 million. after tax income of $22 million.arrow_forward
- On May 1, 2021, Jazzie Co. agreed to sell the assets of its Mister Division to Shawna Inc. for $80 million. The sale was completed on December 31, 2021. Jazzie’s year ends on December 31st. The following additional facts pertain to the transaction: The Mister Division qualifies as a component of an entity as defined by GAAP. Mister's net assets totaled $48 million on Jazzie's books at the time of the sale. Mister incurred a pre-tax operating loss of $10 million in 2021. Jazzie’s income tax rate is 40%. Suppose that the Mister Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In their 2021 income statement, Jazzie Co. would report for discontinued operations: Group of answer choices a $6 million after tax loss. a $10 million after tax loss. a $10.8 million after tax loss. an $18 million after tax loss.arrow_forwardIllustration 1. Measuring Goodwill/Gain on Bargain PurchaseOn January 1, 2021, Amahan Co. acquired all of the assets and assumed all of the liabilities of Anak, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of Anak acquired by Amahan are shown below: On the negotiation for the business combination, Amahan Co. incurred the followingtransaction costs: P25,000.00 for legal fees; P 75,000.00 for accounting fees and P 50,000.00 for consultancy fees. Case 2: Amahan Co. paid P1,000,000.00 cash as consideration for the assets and liabilities ofAnak, Inc. 1. How much is the transaction costs incurred during the business combination?a. 50,000.00b. 75,000.00c. 125,000.00d. 150,000.002. How much is the Consideration Transferred?a. 1,000,000.00b. 1,350,000.00c. 1,500,000.00d. 1,850,000.00 3. How Much is the Non-Controlling Interest in the acquiree?a. 0.00b. 150,000.00c. 310,000.00d. 500,000.000arrow_forwardIllustration 1. Measuring Goodwill/Gain on Bargain PurchaseOn January 1, 2021, Amahan Co. acquired all of the assets and assumed all of the liabilities of Anak, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of Anak acquired by Amahan are shown below: On the negotiation for the business combination, Amahan Co. incurred the followingtransaction costs: P25,000.00 for legal fees; P 75,000.00 for accounting fees and P 50,000.00 for consultancy fees. 1. How much is the goodwill (gain on bargain purchase) on the businesscombination?a. (465,000.00)b. 185,000.00c. (190,000.00)d. 310,000.00arrow_forward
- Illustration 1. Measuring Goodwill/Gain on Bargain PurchaseOn January 1, 2021, Amahan Co. acquired all of the assets and assumed all of the liabilities of Anak, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of Anak acquired by Amahan are shown below: On the negotiation for the business combination, Amahan Co. incurred the followingtransaction costs: P25,000.00 for legal fees; P 75,000.00 for accounting fees and P 50,000.00 for consultancy fees. 1. How much is the previously held equity interest in the acquiree?a. 0.00b. 150,000.00c. 310,000.00d. 500,000.00 2. How much is the fair value of the net identifiable assets acquired?a. 1,965,000.00b. 1,315,000.00c. 1,310,000.00d. 1,190,000.00 3. How much is the goodwill (gain on bargain purchase) on the businesscombination?a. (465,000.00)b. 185,000.00c. (190,000.00)d. 310,000.00arrow_forwardIn May 2020, a parent sold inventories to a subsidiary entity for $60 000. The inventories had previously cost the parent entity $48 000. The entire inventory is still held by the subsidiary at reporting date, 30 June 2020. Ignoring tax effects, which of the following is the adjustment entry in the consolidation worksheet at reporting date? a. Cash Dr 48 000 Sales revenue Cr 48 000 Cost of sales Dr 48 000 Inventories Cr 48 000 b. Sales revenue Dr 48 000 Cash Cr 48 000 Inventories Dr 48 000 Cost of sales Cr 48 000 c. Cost of sales Dr 60 000 Sales revenue Cr 12 000 Inventories Cr 48 000 d. Sales revenue Dr 60 000 Cost of sales Cr 48 000 Inventories Cr 12 000 Answer (write…arrow_forwardPartner, Inc. owns 80% of Senior, Inc. During 2020, Partner sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 2020. For 2020 consolidated financial statements, how should the summation of Partner and Senior income statement items be adjusted? A. No adjustment is necessary since the inventory was sold 100% to outsider. B. Sales and cost of goods sold should be reduced by the intercompany sales. C. Sales and cost of goods sold should be reduced by 80% of the intercompany sales. D. Net income should be reduced by 80% of the gross profit on intercompany sales.arrow_forward
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning