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Unformatted text preview: Intercompany Transactions: There is nothing easy about intercompany transactions. The difficultly level of intercompany begins ugly, followed by uglier and Ozzie Osborne. Example 1: Parent owns 90% of Sub Ltd. In 2009, Parent sold inventory to Sub for $120,000; and Parent realizes a 35% gross profit margin on all its sales. At the end of the year, Sub Ltd had all the inventory it purchased from Parent on its books. In 2010, Sub Ltd. sold all the inventory it purchased from Parent to a 3 rd Party for $150,000. Further, in 2010 Sub sold a piece of land to Parent for a loss of $20,000. Both companies have a tax rate of 20%. Required: 1. Prepare the elimination entries that are required for preparing consolidated statements for 2009 and 2010. 2. Prepare EQUITY method journal entries on the books of the Parent if Parent used the EQUITY method in 2009 and 2010. Example 2: Parent owns 90% of Sub Ltd. In 2009, Parent sold inventory to Sub for $150,000 and Sub in turn sold all the inventory to a 3 rd party. In 2009, Sub sold inventory to parent for $100,000 and Sub Ltd. realized a 25% gross profit margin on its sales. At the end of the year, Parent had half of the inventory it purchased from Parent on its books. year, Parent had half of the inventory it purchased from Parent on its books....
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- Winter '11
- Parent, Generally Accepted Accounting Principles, consolidated net income, Akash S. Rattan