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McGraw-Hill/Irwin
pany Inventory Transactions
7
General Overview
When there have been pany inventory transactions, eliminating entries are needed to remove the revenue and expenses related to the pany transfers recorded by the panies
General Overview
The eliminations ensure that only the cost of the inventory to the consolidated entity is included in the consolidated balance sheet when the inventory is still on hand and is charged to cost of goods sold in the period the inventory is resold to nonaffiliates
General Overview
Transfers at cost
The balance sheet inventory amounts at the end of the period require no adjustment for consolidation because the purchasing affiliate’s inventory carrying amount is the same as the cost to the transferring affiliate and the consolidated entity
When inventory is resold to a nonaffiliate, the amount recognized as cost of goods sold by the affiliate making the outside sale is the cost to the consolidated entity
General Overview
Transfers at cost
An eliminating entry is needed to remove both the revenue from the intercorporate sale and the related cost of goods sold recorded by the seller
e is not affected by the eliminating entry
General Overview
Transfers at a profit or panies use different approaches in setting intercorporate transfer prices
The elimination process must remove the effects of such sales from the consolidated statements
General Overview
Transfers at a profit or loss
The workpaper eliminations needed for consolidation in the period of transfer must adjust accounts in:
Consolidated e statement: Sales and cost of goods sold
Consolidated balance sheet: Inventory
The resulting financial statements appear as if the pany transfer had not occurred
General Overview
Effect of type of inventory system
panies use either a perpetual or a periodic inventory control system to keep track of inventory and cost of goods sold
The choice between these inventory syste