Intercompany Inventory Elimination Entries (FAR exam) | Universal CPA Review

[@natek6754]

This is one of the better discussions I've seen on this topic. Thanks.

[@universalcpareview]

You’re welcome! Every concept can be simplified, and that is what we try to do with the Universal course. Thanks for the comment!

[@tejachmay718]

We do the direct method in class but this worksheet intuitive reasoning clears a lot up. Thank you!!

[@universalcpareview]

Glad it was helpful!

[@subbaduvvuri3925]

Thank you for the explanation

[@goodgood670]

thanks a lot❤

[@jmplocharczyk]

For scenario #2: Does Minnow still have a journal entry of Debit Cogs 500,000 Credit Sales 700,000 The eliminating entry for the intercompany profits is solely eliminating the profit on the parents books?

[@pavelramirez141]

How come the sub’s initial JE has accounts payable as credit? I don’t see anywhere that says that it was sold on credit..

[@universalcpareview]

Hi Pavel! It's unlikely that cash would actually transfer in an intercompany relationship, so that is why we would credit A/P and not cash. So what the buying entity would do is credit accounts payable and in their accounting system list the other subsidiary as the vendor/seller. That allows the company to easily track intercompany purchases between the two subsidiaries. The credit could also be to intercompany payable rather than accounts payable. There is no right answer, but the important thing is that the company can easily track intercompany activity in their accounting system. Does that make sense?

[@dooham1383]

For scenario 3, what are the journal entries if the rest of the inventory was sold in the following year? I know that cogs would need to be reduced but against what other account. Do you still need to remove the inter company cogs and sales? Thank you!

[@saraevecaruthers341]

how would this work if they only own 80%?