Consider the intercompany transfer of inventory between a parent and a subsidiary. Some say that intercompany...

Consider the intercompany transfer of inventory between a parent and a subsidiary. Some say that intercompany transfers can be a source of significant corporate risk. Why is that? Are there any internal controls you can think of that would minimize this risk?

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ekkarill92 answered 1 year ago

A subsidiary made sales of inventory to its parent at a profitthis year. The parent,...

A subsidiary made sales of inventory to its parent at a profit this year. The parent, in turn, sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit. The amount that should be reported as cost of goods sold in the consolidated income statement prepared for the year should be:A. the amount reported as intercompany sales by the subsidiary.B. the amount reported as intercompany sales by the subsidiary minus unrealized profit in the ending inventory of...

A parent and its subsidiary began engaging in intercompany merchandise sales this year. Total retail value...

A parent and its subsidiary began engaging in intercompany merchandise sales this year. Total retail value of upstream sales for the year were $65,000; the retail value of downstream sales was $25,000. The subsidiary sells to the parent at a markup of 35% on cost; the parent sells to the subsidiary at a markup of 30% on sales price. Upstream sales of $13,500 remain in the parent’s ending inventory. Downstream sales of $6,000 remain in the subsidiary’s ending inventory. Required...

19. Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, realizing...

19. Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, realizing a $25,000 gain. Subsidiary uses the land for five years in its trade or business before selling the land to a nonmember of the group in a cash sale in which a $50,000 gain is realized. Which statement is correct? A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation. A $50,000 Sec. 1231 gain is...

A parent provides marketing services to its subsidiary during 2017. The parent charged the subsidiary $500,000...

A parent provides marketing services to its subsidiary during 2017. The parent charged the subsidiary $500,000 for the services. The services cost the parent $400,000 (paid in cash). The companies use service revenue and service expense, as appropriate, to record this transaction and all intercompany charges were still unpaid as of the end of the year. Provide the 2017 entries needed to record both the original transactions and the eliminations necessary for consolidation. Provide entries for Parent, Subsidiary, and the...

What are some alternatives a parent company has if it wishes to acquire outsanding subsidiary bonds...

What are some alternatives a parent company has if it wishes to acquire outsanding subsidiary bonds from outside owners?

The following information is available concerning transactions between a parent and its wholly-owned subsidiary for the...

The following information is available concerning transactions between a parent and its wholly-owned subsidiary for the current year. The parent sells merchandise to the subsidiary at a markup of 20% on cost. The subsidiary’s beginning inventory includes $30,000 purchased from the parent, and its ending inventory includes $42,000 purchased from the parent. Total sales from the parent to the subsidiary were $800,000. The subsidiary sold plant assets to the parent in a prior year, charging the parent $650,000. The plant...

Case Study 8: Parent-subsidiary relationship (AASB10) In the following independent situations, determine whether a parent–subsidiary relationship...

Case Study 8: Parent-subsidiary relationship (AASB10) In the following independent situations, determine whether a parent–subsidiary relationship exists, and which entity, if any, is a parent. 1. Road Ltd is a company that was hurt by a major downturn in the economy. It previously obtained a significant loan from Wile E. Bank, and when Road Ltd was unable to make its loan repayments, the bank made an agreement with Road Ltd to become involved in the management of that company. Under...

A parent sells land costing $4,000,000 to a subsidiary in 2019 for $4,500,000. The parent owns...

A parent sells land costing $4,000,000 to a subsidiary in 2019 for $4,500,000. The parent owns 80% of the subsidiary. Suppose the subsidiary sells the land to an outside party in 2021 for $5,200,000. What is the effect of the $500,000 intercompany profit confirmed in the year of sale to the outside party on Equity in Net Income and the 20% Noncontrolling Interest in Net Income? Select one: a. Add $500,000 to Equity in Net Income; No effect on the...

A parent sells land costing $40,000 to a subsidiary in 2018 for $55,000. The subsidiary sells...

A parent sells land costing $40,000 to a subsidiary in 2018 for $55,000. The subsidiary sells the land in 2020 to a third party for $65,000. On the consolidated income statement for 2020, the gain on sale of land is: a. $15,000 b. $10,000 c. $0 d. $25,000 37. A parent sells land to its subsidiary for $40,000 and reports a gain of $5,000. At what amount should the land be shown on the consolidated balance sheet? a. ...

During 2018, Serenity Corp., a 90%-owned subsidiary, sold inventory to Patience, Inc. (its parent) for $800,000;...

During 2018, Serenity Corp., a 90%-owned subsidiary, sold inventory to Patience, Inc. (its parent) for $800,000; the inventory originally had cost Serenity $500,000. By the end of 2018, only one-fourth of the inventory had been resold to unrelated parties. For 2018, the two companies reported the following: Operating income of Patience (excluding $900,000 earnings from Serenity) Net income of Serenity $500,000 Total $1,400,000 Think through, and maybe write out, for yourself, the elimination JE needed. Then...

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