Intercompany Transactions

Question 0

intercompany inventory/merchandise

Answer 0

sales and COGS are eliminated prior to consolidating F/S

Question 1

intercompany transactions

Answer 1

eliminated for external reporting

Question 2

intercompany profit

Answer 2

eliminated from:

• ending inventory and COGS of purchasor
• beginning inventory of seller (DR, retained earnings)

Question 3

correcting accounts

Answer 3

reverse sales and COGS
correct COGS (if sold to outsiders)
correct ending inventory (if inventory still at hand)

Question 4

intercompany bond transactions

Answer 4

debt considered retired

gain/loss recognized on consolidated I/S

Question 5

extinguishment of debt

Answer 5

gain/loss recognized (extraordinary if unusual AND infrequent)
= price paid to acquire debt
- BV of debt

not reported on either company’s books
recorded as elimination entry