Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 6, Problem 6.1Q
Why must inventory transfers to related companies be eliminated in preparing consolidated financial statement?
Expert Solution & Answer
To determine
Concept Introduction:
Consolidated financial statements:
Consolidated financial statements are prepared by a parent company to consolidate the assets and liabilities of the parent and its subsidiaries.
To Indicate the reason for the elimination of inventory transfers to related companies while preparing the consolidated financial statements.
Explanation of Solution
A consolidated balance sheet shows the combined balances of the parent company and its subsidiaries. On the balance sheet of the parent company, all the assets of the subsidiary are added with the assets of the parent company. The intercompany transactions are eliminated from the consolidated financial statement because it will create an unnecessary financial recording. Hence, the intercompany inventory transactions are also eliminated while preparing the consolidated financial statements.
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Chapter 6 Solutions
Advanced Financial Accounting
Ch. 6 - Why must inventory transfers to related companies...Ch. 6 - Why is there a need for a consolidation entry when...Ch. 6 - Prob. 6.3QCh. 6 - How do unrealized intercompany profits on a...Ch. 6 - How do unrealized intercompany profits on an...Ch. 6 - Prob. 6.6QCh. 6 - Prob. 6.9QCh. 6 - Prob. 6.10QCh. 6 - How is the amount of consolidated retained...Ch. 6 - How will the elimination of unrealized...
Ch. 6 - Prob. 6.14QCh. 6 - Is an inventory sale from one subsidiary to...Ch. 6 - Prob. 6.16QCh. 6 - Prob. 6.1.1ECh. 6 - Prob. 6.1.2ECh. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - Prob. 6.1.5ECh. 6 - Prob. 6.1.6ECh. 6 - Prob. 6.3.1ECh. 6 - Prob. 6.3.2ECh. 6 - Prob. 6.3.3ECh. 6 - Prob. 6.4.1ECh. 6 - Prob. 6.4.2ECh. 6 - Prob. 6.4.3ECh. 6 - Prob. 6.4.4ECh. 6 - Prob. 6.5.1ECh. 6 - Prob. 6.5.2ECh. 6 - Prob. 6.5.3E
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- What is the impact of LIFO inventory liquidation on a companys interim financial statements?arrow_forwardHow are unusual or infrequent gains or losses reported on a company's income statement?arrow_forwardHow does the inventory method chosen can have a significant effect on the amount of income reported by the company to external parties?arrow_forward
- Why might a company choose not to use revaluation accounting?arrow_forwardWhy is continuity assumption,separate entity assumption and cost principle so important for statement of financial position reporting?arrow_forwardWhat are the different methods of inventory valuation, and how do they impact a company's financial statements?arrow_forward
- How does the timing of revenue recognition impact a company's financial statements and profitability?arrow_forwardWhat is the controlling interest percentage for a consolidated accounting financial statement?arrow_forwardWhat happens when the ending inventory is misstated (over- and understated specifically) and how it affects the corporate financials?arrow_forward
- How is inventory management a balancing act between stock- out costs and holding costs?arrow_forwardShort answer: Define a 'responsibility' in accordance with the Conceptual Framework's explanation, using examples. Explain briefly the accounting term "reporting entity" in accordance with the Conceptual Framework for Financial Reporting. Regarding the recording and subsequent revaluation of inventory, please define "the lower of cost and net realizable value." Briefly explain the “accrual basis assumption" and why financial statements are prepared under this basis.arrow_forwardExplain how the revenue recognition principle supports the elimination of intercompany transactions when preparing consolidated financial statementsarrow_forward
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