Chapter 5 "Consolidated financial statements - intra-entity asset transactions", after studying this chapter, you should be able to: Understand why intra-entity asset transfers create accounting effects within the financial records of affiliated companies that must be eliminated or adjusted in preparing consolidated financial statements; understand that when companies affiliated through common control engage in intra-entity inventory transfers, consolidation procedures are required to eliminate sales and purchases balances;. | Chapter Five Consolidated Financial Statements - Intra-Entity Asset Transactions Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Intra-entity Transactions When companies affiliated through common control engage in intra-entity inventory transfers, consolidation procedures are required to eliminate sales and purchases balances. Transactions between a parent and subsidiary are considered “internal” transactions of a single entity. Effects of intra-entity transactions should be eliminated from the consolidated financial statements. Consolidated statements must reflect only transactions with outside parties. LO 1 5- 2 Intra-entity Transactions When companies affiliated through common control engage in intra-entity inventory transfers, consolidation procedures are required to eliminate sales and purchases balances. Transactions between a parent and subsidiary are considered “internal” transactions of a single entity. Effects of intra-entity transactions should be eliminated from the consolidated financial statements. Consolidated statements must reflect only transactions with outside parties. The total recorded amounts are deleted. Sales and Purchases- Intra-entity ENTRY TI (Transferred Inventory) Eliminate all intra-entity sales/purchases of inventory by eliminating the sales price of the transfer – which one company records as sales, and the other records as cost of goods sold. LO 2 5- 3 Sales and Purchases- Intra-entity ENTRY TI (Transferred Inventory) Eliminate all intra-entity sales/purchases of inventory by eliminating the sales price of the transfer – which one company records as sales, and the other records as cost of goods sold. Note: The consolidated company has earned the profit on any portion of the intra-entity transaction that was sold to unrelated parties and does not need to make an adjustment for the sold items for consolidation purposes. Unrealized Gross Profit – Intra-entity ENTRY G (Gross Profit) . | Chapter Five Consolidated Financial Statements - Intra-Entity Asset Transactions Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Intra-entity Transactions When companies affiliated through common control engage in intra-entity inventory transfers, consolidation procedures are required to eliminate sales and purchases balances. Transactions between a parent and subsidiary are considered “internal” transactions of a single entity. Effects of intra-entity transactions should be eliminated from the consolidated financial statements. Consolidated statements must reflect only transactions with outside parties. LO 1 5- 2 Intra-entity Transactions When companies affiliated through common control engage in intra-entity inventory transfers, consolidation procedures are required to eliminate sales and purchases balances. Transactions between a parent and subsidiary are considered “internal” transactions of a single entity. Effects of intra-entity .
