高级会计学(第10版)教师手册Beams10e_IM_2.pdf

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1、 2009 Pearson Education,Inc.publishing as Prentice Hall 36 Chapter 5 INTERCOMPANY PROFIT TRANSACTIONS-INVENTORIES Chapter Outline TRANSACTIONS BETWEEN AFFILIATED COMPANIES A Transactions between affiliated companies(intercompany transactions)must be eliminated during the consolidation process.B Reci

2、procal account balances are eliminated 1 For example,intercompany sales transactions create reciprocal sales and purchases accounts as well as reciprocal accounts receivable and accounts payable.C Gains and losses from intercompany transactions are eliminated until realized through use or through sa

3、le to an outside entity.1 The total amount of the intercompany profit is eliminated,whether or not there is a noncontrolling interest.2 The objective is to show the income and financial position of the consolidated entity as they would have appeared if the intercompany transaction had never taken pl

4、ace.ELIMINATION OF INTERCOMPANY SALES AND COST OF GOODS SOLD A Elimination of intercompany sales and cost of goods sold does not affect consolidated net income 1 However,consolidated sales,cost of goods sold,and purchases will be reduced 2 Since an equal amount of sales and cost of sales is eliminat

5、ed,neither gross profit nor net income are affected B Under a periodic inventory system,the working paper entry is a debit to sales and a credit to purchases 2009 Pearson Education,Inc.publishing as Prentice Hall 37 C Under a perpetual inventory system(discussed in the text),the working paper entry

6、is a debit to sales and a credit to cost of goods sold.SALES OF INVENTORY ITEMS(Illustration 5-1)A Downstream sales are those sales from a parent to its subsidiary 1 The consolidation process eliminates the full amount of intercompany sales and cost of sales,regardless of whether the sales are downs

7、tream or upstream.2 In a downstream sale,the parent companys separate income includes the unrealized profit(in its sales and cost of sales accounts).3 The subsidiarys net income is not affected;therefore,noncontrolling interest expense is computed as the subsidiarys reported net income times the non

8、controlling interest percentage.4 The subsidiarys ending inventory includes the unrealized profit until the merchandise is sold to outside entities.a The subsidiarys ending inventory reflects the transfer price,rather than the cost to the consolidated entity.b In the consolidation working papers,the

9、 inventory is reduced to its cost basis by a debit to cost of goods sold and a credit to ending inventory.5 Under the equity method,the full amount of unrealized profit from intercompany downstream sales is charged against income from subsidiary(i.e.,not allocated to the noncontrolling interest).B U

10、pstream sales are those sales from a subsidiary to its parent 1 Again,the consolidation process eliminates the full amount of intercompany sales and cost of sales,regardless of whether the sales are downstream or upstream.2 The subsidiarys net income includes the full amount of the unrealized profit

11、s(included in its sales and cost of goods sold accounts).a The unrealized profit in the subsidiarys net income is allocated proportionately to the majority and noncontrolling interests in our text.2009 Pearson Education,Inc.publishing as Prentice Hall 38 b Consolidated net income and noncontrolling

12、interest expense are computed on the basis of income that is realized from the viewpoint of the consolidated entity.c A subsidiarys realized income is its reported net income,adjusted for intercompany profits from upstream sales.2 The parent companys separate income is not affected by unrealized pro

13、fits from upstream sales,but its net income(which includes investment income)is affected.3 The parent companys ending inventory includes the unrealized inventory profit until the merchandise is sold to outside entities.4 Under the equity method,only the parents proportionate share of unrealized prof

14、its from intercompany upstream sales is charged against income from the subsidiary.ACCOUNTING FOR UNREALIZED PROFITS FROM DOWNSTREAM SALES A In the consolidation working papers,the full amount of the intercompany sales is eliminated from sales and cost of goods sold.B The unrealized profit is deferr

15、ed until it is realized when sold to an outside entity.1 Deferral is accomplished in the consolidation working papers by a working paper entry that increases cost of goods sold for the unrealized profit and reduces the ending inventory to its cost basis(to the consolidated entity).2 From the consoli

16、dated entity viewpoint,unrealized profits in the ending inventory understates cost of goods sold and overstates consolidated net income.3 Under the equity method,the full amount of the unrealized profit in the subsidiarys inventory is eliminated from investment income and from the investment in subs

17、idiary account on the parent company books.C When the inventory items acquired by the subsidiary from the parent company are sold to outside entities,the intercompany profit is realized.1 The unrealized profits in the ending inventory of one period are the unrealized profits in the beginning invento

18、ry in the next period.2009 Pearson Education,Inc.publishing as Prentice Hall 39 2 The effect of unrealized profits in the beginning inventory is just opposite to that of unrealized profits in the ending inventory.a Unrealized profits in the ending inventory(year of intercompany sale)have a direct re

19、lationship to consolidated net income.b Unrealized profits in the beginning inventory(year of sale to outside entities)have an inverse relationship to consolidated net income.3 Under the equity method,the investment in subsidiary and income from subsidiary amounts are increased for the realization o

20、f the intercompany profits from the preceding period.4 Realization of deferred profits in the subsidiarys beginning inventory overstates cost of goods sold from the consolidated viewpoint.5 The working paper entry to record the realization of deferred profits is a debit to the investment in subsidia

21、ry account and a credit to cost of goods sold a The beginning inventory account cannot be adjusted directly because it has already been closed to the cost of goods sold account.b The debit to the investment account reestablishes reciprocity between the investment balance at the beginning of the peri

22、od and the subsidiarys equity accounts at the same date.6 Unrealized inventory profits in consolidated financial statements are self-correcting over any two accounting periods.ACCOUNTING FOR UNREALIZED PROFITS FROM UPSTREAM SALES A As in the case of downstream sales,the full amount of the intercompa

23、ny sales is eliminated from sales and cost of sales in the consolidation working papers.B Intercompany sales from the subsidiary to the parent company increase the subsidiarys sales,cost of goods sold,gross profit,and net income.C The unrealized profit remains in the parent companys inventory until

24、the items are sold to outside entities.1 If the selling subsidiary is 100%owned,the parent company defers 100%of any unrealized profits in the year of the intercompany sale.2009 Pearson Education,Inc.publishing as Prentice Hall 40 2 If the selling subsidiary is partially owned,the parent company def

25、ers only its proportionate share of the unrealized profits in the year of the intercompany sale.3 The noncontrolling interest expense is reduced for its proportionate share of any unrealized subsidiary profits.To compute noncontrolling interest expense,the unrealized profit is subtracted from the su

26、bsidiarys reported net income,and the resulting subsidiary realized income is multiplied by the noncontrolling interest percentage.D Intercompany profit is recognized and realized when the inventory items are sold to outside entities.1 Unrealized profits in the beginning inventory overstate cost of

27、goods sold.a In the consolidation working papers,a working paper entry reduces cost of goods sold to its cost basis(credit)and adjusts the investment account and beginning minority interest(debits)for the previously deferred unrealized profits in the beginning inventory.b Recall that the effect of u

28、nrealized profits in a beginning inventory on parent company and consolidated net income are opposite the effect of unrealized profits in an ending inventory.3 Under the equity method,realization of previously deferred intercompany profits increases investment income and the investment in subsidiary

29、 account for the parent companys proportionate share.ELECTRONIC SUPPLEMENT A The electronic supplement explains procedures when a parent is using either the incomplete equity method or cost method of accounting for its investment.APPENDIX A A The SEC influence on accounting is discussed.1)Securities

30、 Act of 1933 regulates initial issuances.2)Securities Exchange Act of 1934 regulates subsequent trading.3)Sarbanes-Oxley Act is a response to the“scandals”.B Regulations S-X prescribes rules foe SEC filed financial sytatements.2009 Pearson Education,Inc.publishing as Prentice Hall 41 C Regulation S-

31、K covers nonfinancial statement disclosures.D The Sec also regulates those international firms that list their shares on U.S.securities Exchanges.IFRS-based financial statements may be permitted Description of assignment material Minutes Questions(14)Exercises(12)E5-1 8 MC general questions 16 E5-2

32、AICPA 3 MC problems type 15 E5-3 3 MC problems type(downstream sales)15 E5-4 Pride/Sedita 3 MC problem type questions(upstream sales)15 E5-5 Parcon/Shelly 3 MC problem type questions(upstream sales)15 E5-6 3 MC problem type questions(upstream sales)15 E5-7 Pansy/Sheridan Determine consolidated net i

33、ncome for 3 years with 12 downstream intercompany sales E5-8 Pycus/Sylvia Consolidated income statement(downstream sales)15 E5-9 Purgatory/Seven Compute noncontrolling interest and consolidated cost of 12 sales(upstream sales)E5-10 Papillion/Saiki Consolidated income statement(upstream sales)15 E5-1

34、1 Pres/Suey 3 MC problem-type questions(upstream sales)15 E5-12 Pullen/Swain Consolidated income statement(intercompany sales 20 correction)Problems(10)P5-1 Proctor/Samel Prepare consolidated income and retained earnings statement 20 (upstream sales and noncontrolling interest)P5-2 Putt/Slam Computa

35、tions(upstream sales over 3 years)20 P5-3 Potter/Scan/Tray Computations(parent buys from one subsidiary and sells to 50 the other)P5-4 Plier/Stuff Computations(upstream and downstream sales over three years)45 P5-5 Pane/Seal Financial statement working papers(100%owned subsidiary,equity 45 method,do

36、wnstream sales,year after acquisition)P5-6 Patty/Sue Financial statement working papers(equity method,noncontrolling 60 interest,downstream sales,year after acquisition)P5-7 Poly/Susan Consolidation working papers(equity method,upstream sales,60 noncontrolling interest)P5-8 Pan/Sal Consolidated work

37、ing papers(downstream sales)50 P5-9 Pat/Sun Consolidated working papers(downstream sales)50 P5-10 Po/San Consolidated working papers(noncontrolling interest,upstream sales,50 2009 Pearson Education,Inc.publishing as Prentice Hall 42 intercompany receivables/payables)Internet Assignment Using Ford Mo

38、tor Companys annual reports from the website,discuss information presented concerning intercompany inventory transfers or intersegment sales.Illustration 5-1 INTERCOMPANY INVENTORY PROFITS P owns a 90%interest in S acquired at book value equal to fair value at the beginning of 20Xl.Separate incomes

39、20X1 P S Combined Sales$500,000$300,000$800,000 Cost of sales(300,000)(200,000)(500,000)Expenses(100,000)(50,000)(150,000)Separate incomes$100,000$50,000$150,000 Additional information:1 Intercompany sales in 20Xl were$50,000.2 Cost of inventory items sold intercompany was$40,000 and the intercompan

40、y profit was$10,000.3 Unrealized profit at year-end 20Xl was$5,000.Separate incomes 20X2 P S Combined Sales$550,000$350,000$900,000 Cost of Sales(300,000)(200,000)(500,000)2009 Pearson Education,Inc.publishing as Prentice Hall 43 Expenses(140,000)(90,000)(230,000)Separate incomes$110,000$60,000$170,

41、000 Additional information:1 Intercompany sales in 20X2 were$80,000.2 Cost of inventory items sold intercompany was$50,000 and the intercompany profit was$30,000.3 Unrealized profit at year-end 20X2 was$10,000.4 All intercompany profit deferred in 20Xl was realized in 20X2.2009 Pearson Education,Inc

42、.publishing as Prentice Hall 44 DOWNSTREAM SALES-20XI ($5,000 unrealized profit deferred One-line consolidation entry:Investment in S$40,000 Income from S$40,000 To take up income from S computed as($50,000 x 90%)$5,000 unrealized profit deferred.Consolidation working paper entries:a Sales$50,000 Co

43、st of sales$50,000 To eliminate intercompany purchases and sales amounts.b Cost of sales$5,000 Inventory$5,000 To defer unrealized profit in ending inventory.c Income from S$40,000 Investment in S$40,000 To eliminate income from S and return investment account to its beginning of the period balance.

44、2009 Pearson Education,Inc.publishing as Prentice Hall 45 DOWNSTREAM SALES-20X2 ($5,000 realized profit;$10,000 profit deferred One-line consolidation entry:Investment in S$49,000 Income from S$49,000 To take up income from S computed as:($60,000 x 90%)+realization of$5,000 in beginning Inventory de

45、ferral of$10,000 unrealized profit in ending inventory.Consolidation working paper entries:a Sales$80,000 Cost of sales$80,000 To eliminate intercompany purchases and sales.b Investment is S$5,000 Cost of sales$5,000 To recognize previously deferred profit from beginning inventory.c Cost of sales$10

46、,000 Inventory$10,000 To defer unrealized profit in ending inventory.d Income from S$49,000 Investment in S$49,000 To eliminate investment income and return investment account to its beginning of the period balance.2009 Pearson Education,Inc.publishing as Prentice Hall 46 UPSTREAM SALES -20XI ($5,00

47、0 unrealized profit deferred One-line consolidation entry:Investment in S$40,500 Income from S$40,500 To take up income from S computed as($50,000-$5,000)x 90%.Consolidation working paper entries:a Sales$50,000 Cost of sales$50,000 To eliminate intercompany purchases and sales amounts.b Cost of sale

48、s$5,000 Inventory$5,000 To defer unrealized profit in ending inventory.c Income from S$40,500 Investment in S$40,500 To eliminate income from S and return investment balance to its beginning of the period balance.2009 Pearson Education,Inc.publishing as Prentice Hall 47 UPSTREAM SALES-20X2$5,000 rea

49、lized profit;$10,000 profit deferred One-line consolidation entry:Investment in S$49,500 Income from S$49,500 To take up income from S computed as:($60,000 +$5,000 in beginning inventory-$10,000 unrealized profit in ending inventory)x 90%.Consolidation working paper entries:a Sales$80,000 Cost of sa

50、les$80,000 To eliminate intercompany purchases and sales.b Investment in S$4,500 Noncontrolling interest 500 Cost of sales$5,000 To recognize previously deferred profit from beginning inventory allocated to investment account and noncontrolling interest.c Cost of sales$10,000 Inventory$10,000 To def