unit 5 AA discussions.docx - Hello class and Professor From a consolidated perspective neither a sale nor a purchase has occurred An intra-entity

unit 5 AA discussions.docx - Hello class and Professor From...

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Hello class and Professor, From a consolidated perspective neither a sale nor a purchase has occurred. An intra-entity transfer is merely the internal movement of inventory, an event that creates no net change in the financial position of the business combination taken as a whole. Thus, in producing consolidated financial statements, the recorded effects of these transfers are eliminated so that consolidated statements reflect only transactions with outside parties. Some of the misstatements would be an understatement of inventory, cost of goods sold could be understated, or profits could be overstated. An example would be if a parent company transferred goods to a subsidiary at an increased rate. This would cause an overstatement of sales. The adjustment would correct the
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