Question

List all the intra-entity transfers that can occur between parent and subsidiary. Also, identify the new consolidation entries.

Answer 1

Intra-entity transfers that can occur between parent and subsidiary

1. Sale of inventory by subsidiary to Parent - It is possible that parent purchase some of the inventory from its own subsidiary. This is known as Upstream sale

2. sale of inventory by parent to subsidiary - Sometimes subsidiary purchase goods from parent company and it is known as Downstream sale.

3. Transfer/sale of fixed asset - Sometime parent or subsidiary purchase fixed asset like machinery, equipment,land, building from subsidiary /parent

This transfer can be at the beginning of the year, at the end of the year or at any other date, accounting entries will depend on date of sale/transfer.

4. Debt transaction - Sometime parent/subsidiary company issue bonds or long term debt (notes payable) which is purchased by subsidaiary /parent company. This will result in elimination entries of note/bond payable/receivable, interest payable /receivable, interest expense/income.

5. Intercompany loan - One company can provide loan to another company.

New Consolidation Entries

TI Entry - for transfer of goods - Debit Sales

Credit Cost of goods sold

It eliminated intercompany sale / purchase of inventory

G-Entry - to remove the unrealized profit in ending inventory

Debit Cost of goods sold

Credit Inventory

*G Entry- this entry is recorded in the beginning of the next year

Debit Investment in subsidiary

Credit Cost of goods sold

(If parent sell the goods to subsidiary)

Debit Retained Earnings

Credit cost of goods sold

(If subsidiary sells the goods to parent)

TL - entry - on transfer of land

Debit Gain on sale of land

Credit Land

TA entry - On transfer of assets

Debit Gain on sale of asset

Debit asset

Credit Accumulated depreciation

ED entry - excess depreciation

Debit Accumulated Depreciation

Credit Depreciation

*TA entry - on transfer of asset after 1st year

Debit Retained earnings

Debit Asset

Credit Accumulated Depreciation

Credit Depreciation (excess depreciation charged)