Chapter 8Objectives of the ChapterObjectives of the Chapter (Contd.)Principle to follow to account for the intercompany transactions for the consolidated financial statements:Principle to follow to account for the intercompany transactions for the consolidated financial statements: (Contd.)I. Accounting for Intercompany Transactions Not Involving Profit (Gain) or LossI. Accounting for Intercompany Transactions Not Involving Profit (Gain) or Loss (Contd.)Example 8.1: Intercompany Loans from Palm (the parent company) to Starr (the subsidiary)Example 8.1: Intercompany Loans from Palm (the parent company) to Starr (the subsidiary) (Contd.)Slide 10Slide 11Slide 12Discounting of Intercompany NotesExample 8.2: Discounting of Intercompany NotesExample 8.2: Discounting of Intercompany Notes (Contd.)Slide 16Slide 17Slide 18Leases of Property under Operating LeasesLeases of Property under Operating Leases (Contd.)Rendering of ServicesRendering of Services (Contd.)Income Texas Applicable to Intercompany TransactionsII. Accounting for Intercompany Transactions Involving Profit (Gain) or LossThe Importance of Eliminating or Including Intercompany Profits (Gains) and LossesThe Importance of Eliminating or Including Intercompany Profits (Gains) and Losses (Contd.)Intercompany Sales of MerchandiseIntercompany Sales of Merchandise (Contd.)Intercompany Sales of Merchandise (Contd.) Example 8.3 : (Contd.)Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Intercompany Sales of Merchandise (Contd.) Example 8.4:Intercompany sales at a mark upIntercompany Sales of Merchandise (Contd.) Example 8.4: (Contd.)Intercompany Sales of Merchandise (Contd.) Example 8.4 : (Contd.)Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Notes to the Intercompany Sales of Merchandise at a Mark Up by a Partially Own SubsidiaryNotes to the Intercompany Sales of Merchandise at a Mark Up by a Partially Own Subsidiary (Contd.)Intercompany (Unrealized) Profit in Beginning and Ending InventoriesIntercompany (Unrealized) Profit in Beginning and Ending Inventories(contd.)Slide 50Slide 51Slide 52Slide 53Issues in Intercompany Profit in Ending Inventories and Amount of Minority InterestIssues in Intercompany Profit in Ending Inventories and Amount of Minority Interest (Contd.)Slide 56Slide 57Slide 58Slide 59Intercompany Sales of Plant AssetsIntercompany Sales of Plant Assets (Contd.)Intercompany Gain on Sale of LandIntercompany Gain on Sale of Land (Contd.) Example 8.5: (Contd.)Slide 64Slide 65Slide 66Slide 67Slide 68Slide 69Slide 70Slide 71Slide 72Intercompany Gain on Sale of Depreciable Plant AssetIntercompany Gain on Sale of Depreciable Plant Asset (Contd.)Slide 75Slide 76Slide 77Slide 78Intercompany Gain subsequent to Date of Sale of Depreciable Plant AssetIntercompany Gain subsequent to Date of Sale of Depreciable Plant Asset (Contd.)Intercompany Gain in Depreciation and Minority InterestIntercompany Gain in Depreciation and Minority Interest (Contd.)Intercompany Gain in later YearsIntercompany Gain in later Years (Contd.)Slide 85Slide 86Slide 87Slide 88Intercompany Lease of Property under Capital/Sale-Type LeaseIntercompany Lease of Property under Capital/Sale-Type Lease (Contd.)Intercompany Lease of Property under Capital/Sale- Type Lease (Contd.) Example 8.6: (Contd.)Slide 92Slide 93Slide 94Slide 95Slide 96Slide 97Slide 98Slide 99Slide 100Slide 101Intercompany Lease of Property under Capital/Sale-Type Lease (Contd.) Example 8.6: (Contd.)Slide 103Slide 104Slide 105Slide 106Slide 107Slide 108Slide 109Slide 110Slide 111Intercompany Lease of Property under Capital/Sale-Type Lease (Contd.) Example 8.6: (Contd.)Slide 113Slide 114Slide 115Intercompany Sales of Intangible AssetsIntercompany Sales of Intangible Assets(Contd.) Example 8.7:Intercompany Sales of Intangible Assets(Contd.) Example 8.7: (Contd.)Slide 119Acquisition of Affiliate’s Bonds in An Open MarketAcquisition of Affiliate’s Bonds in An Open Market (Contd.)Acquisition of Affiliate’s Bonds in An Open Market (Contd.) Example 8.8: (Contd.)Slide 123Acquisition of Affiliate’s Bonds in An Open Market (Contd.) Example 8.8: (Contd.)Slide 125Slide 126Slide 127Slide 128Slide 129Slide 130Slide 131Slide 132Slide 133Slide 134Acquisition of Affiliate’s Bonds in An Open Market (Contd.) Minority interest in Gain on Extinguishemtn of BondsAcquisition of Affiliate’s Bonds in An Open Market (Contd.) Minority interest in Gain on Extinguishemtn of Bonds(Contd.)Accounting for Gain (from Acquisition of Affiliate’s Bonds) in Subsequent YearsAccounting for Gain (from Acquisition of Affiliate’s Bonds) in Subsequent Years (Contd.)Slide 139Slide 140Slide 141Slide 142Slide 143Slide 144Slide 145Slide 146Slide 147Slide 148Slide 149Slide 150Slide 151Slide 152Slide 153Working Paper Elimination on 12/31/2002 (One Year Subsequently to Acquisition of Bonds)Working Paper Elimination on 12/31/2002 (One Year Subsequently to Acquisition of Bonds) (Contd.)Slide 156Working paper elimination on 12/31/2002Working paper elimination on 12/31/2002 (Contd.)Effect of Intercompany Profits on Minority Interest in Net IncomeIntercompany Profits on Minority Interest in Net Income (contd.)Slide 161Slide 162Slide 163Slide 164Slide 165Slide 166Slide 167Slide 168Working Paper for Consolidated Financial Statements (for Year 2001)Working Paper for Consolidated Financial Statements (contd.)Slide 171Working Paper for Consolidated Financial Statements(contd.)Working Paper for Consolidated Financial Statements( for Year 2002)Working Paper for Consolidated Financial Statements( for Year 2002)(cont.)Working Paper for Consolidated Financial Statements( for Year 2002) (cont.)Slide 176Slide 177Slide 178Slide 179Slide 180Slide 181Slide 182Slide 183Slide 184Slide 185Slide 186Working Paper Elimination (for year 2002)Working Paper Elimination (for year 2002) (contd.)Slide 189Slide 190Slide 191Slide 192Slide 193Slide 194Slide 195ACCT 501(All examples are from the textbook by J. Larson)Chapter 8 Consolidated Financial statements: Intercompany TransactionsConsolidated FS-Intercompany Transactions2Objectives of the Chapter To discuss the accounting and working paper eliminations for related party transactions between a parent company and its subsidiaries for: I. intercompany transactions not involving profit or loss such as loans on promissory notes, leases of property under operating leases and rendering of services;Consolidated FS-Intercompany Transactions3Objectives of the Chapter (Contd.)II.intercompany