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Consolidated
Financial
Statements Intra-Entity
Asset
Transactions
McGraw-Hill/Irwin
LO 1
Intra-entity Transactions
When companies affiliated through common control
engage in intra-entity inventory transfers,
consolidation procedures are required to eliminate
sales and purchases balances.
Transactions between a parent and subsidiary are
considered internal transactions of a single entity.
Effects of intra-entity transactions should be
eliminated from the consolidated financial statements.
Consolidated statements must reflect only transactions
with outside parties.
5-2
LO 2
LO 3
LO 4
Intra-entity Transactions
Downstream Transfers
ENTRY *G
If the transfer of inventory is downstream AND the
parent uses the equity method, the following entry is
used to recognize the remaining unrealized profit left at
the end of the previous year.
LO 5
5-8
Intra-Entity Inventory
Downstream Transfer - Example
Entry TI eliminates the intra-entity sales/purchases for 2013.
Intra-entity Transactions
Upstream Inventory Transfer
Entry S eliminates a portion of the parents investment
account and provides the initial noncontrolling interest
balance.
The entry also removes stockholders equity accounts of
the subsidiary as of the beginning of the current year.
5-11
LO 6
Intra-entity Transactions
Land Transfer
ENTRY TL
If land is transferred between the parent and sub at a gain,
the gain is considered unrealized and must be eliminated.
LO 7
5-15
5-16