chapter_5_10th_word

chapter_5_10th_word - Chapter 5 solutions 5 On the...

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Chapter 5 solutions 5. On the individual financial records of James, Inc., a gross profit is recorded in the year of transfer. From the viewpoint of the business combination, this gross profit is actually earned in the period in which the products are sold or consumed by Matthews Co. An ini- tial consolidation entry must be made in the year of transfer to defer any gross profit that remains unrealized. A second entry must be made in the following time period to allow the gross profit to be recognized in the year of its ultimate realization. 12. Depreciable assets are often transferred between the members of a business combina- tion at amounts in excess of book value. The buyer will then compute depreciation ex- pense based on this inflated transfer price rather than on an historical cost basis. From the perspective of the business combination, depreciation should be calculated solely on historical cost figures. Thus, within the consolidation process for each period, adjustment
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chapter_5_10th_word - Chapter 5 solutions 5 On the...

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