Reference no: EM132525083
Question - Data: Parent company owns 70% of Sub Company's outstanding stock. Intercompany sales are as follows:
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Year
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Inventory Cost
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Transfer Price
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Inventory remaining at year end
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2011
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$80,000
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$100,000
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$30,000
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2012
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$110,000
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$130,000
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$26,000
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Prepare Equity Method Journal Entries for the following:
1. Assume Parent sold the inventory to Sub. Using the fully adjusted equity method, what journal entry would be recorded by Parent to defer the unrealized gross profit on inventory sales to Sub in 2011?
2. Assume Sub sold the inventory to Parent. Using the fully adjusted equity method, what journal entry would be recorded by Parent to defer the unrealized gross profit on inventory sales to Sub in 2011?
3. Assume Parent sold the inventory to Sub. Using the fully adjusted equity method, what journal entry would be recorded by Parent to recognize the realization of the 2011 deferred intercompany profit and to defer the 2012 unrealized gross profit on inventory to Sub?
4. Assume Sub sold the inventory to Parent. Using the fully adjusted equity method, what journal entry would be recorded in 2012 by Parent to recognize the realization of the 2011 deferred intercompany profit and to defer the 2012 unrealized gross profit on inventory sales to Sub?
5. Using scenario in #1 - downstream sale - prepare the consolidation entry recorded by Parent Company in 2011 related to the 2011 intercompany transfer.
6. Using scenario in #2 - upstream sale - prepare the consolidation entry recorded by Parent Company in 2011 related to the 2011 intercompany transfer.
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