10
INTERCOMPANY INVENTORY
TRANSFERS
Slide 10-1
Copyright © 2000 by Harcourt, Inc. All rights reserved.
Inventory
Transfers:
10
A Point to Remember
 Intercompany Sales and Intercompany Cost
only
in years in which
intercompany sales
occur.
of Sales accounts are eliminated
Slide 10-2
Copyright © 2000 by Harcourt, Inc. All rights reserved.
Inventory
Transfers:
10
The Three Procedural Methods
 MODULE 1: The Complete Equity Method:
 Unrealized profit is deferred in the selling
entity’s general ledger.
 MODULE 2: The Partial Equity Method:
 Unrealized profit is deferred in the
consolidation process.
 MODULE 3: The Cost Method:
 Unrealized profit is deferred in the
consolidation process.
Slide 10-3
Copyright © 2000 by Harcourt, Inc. All rights reserved.
Miscellaneous:
10
Lower-of-Cost-or-Market Adjustments
 For consolidated reporting purposes,
the appropriate valuation of intercompanyacquired inventory is:
 The

Slide 10-4
lower of:
(1) the selling
entity’s cost or
(2) the market value.
Copyright © 2000 by Harcourt, Inc. All rights reserved.
Miscellaneous:
Partial
Ownerships-10
Reporting to the NCI Shareholders
 Under existing GAAP, a partially owned
subsidiary:
 Need not defer any of its unrealized
intercompany gross profit in reporting
to its NCI shareholders.
Slide 10-5
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10
Review Question #1
 For 2001, Paxco reported $60,000 of
intercompany sales (25% markup on cost and
fully paid for by Y/E) to Saxco, which reported
$20,000 of intercompany acquired inventory at
12/31/01. The unrealized profit at 12/31/01 is:
A. $ -0B. $4,000
C. $5,000
D. $20,000
E. None of the above.
Slide 10-6
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10
Review Question #1--With Answer
 For 2001, Paxco reported $60,000 of
intercompany sales (25% markup on cost and
fully paid for by Y/E) to Saxco, which reported
$20,000 of intercompany acquired inventory at
12/31/01. The unrealized profit at 12/31/01 is:
A. $ -0B. $4,000 (20% of $20,000 Y/E inventory)
C. $5,000
D. $20,000
E. None of the above.
Slide 10-7
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10
Review Question #2
 For 2001, Punco reported intercompany cost of
sales of $1,600,000 (markup is 20% of transfer
price) to Sunco, which reported $600,000 of
intercompany acquired inventory at 12/31/01.
The unrealized profit at 12/31/01 is:
A. $80,000
B. $96,000
C. $120,000
D. $150,000
E. None of the above.
Slide 10-8
Copyright © 2000 by Harcourt, Inc. All rights reserved.
10
Review Question #2--With Answer
 For 2001, Punco reported intercompany cost of
sales of $1,600,000 (markup is 20% of transfer
price) to Sunco, which reported $600,000 of
intercompany acquired inventory at 12/31/01.
The unrealized profit at 12/31/01 is:
A. $80,000
B. $96,000
C. $120,000 (20% of $600,000 Y/E inventory)
D. $150,000
E. None of the above.
Slide 10-9
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10
Review Question #3
 For 2001, Salco (80% owned by Palco) reported
$800,000 of intercompany sales (1/3 markup on
cost) to Palco, which resold $700,000 of this
inventory by 12/31/01. The unrealized profit
at 12/31/01 is:
A. $20,000
B. $25,000
C. $26,667
D. $33,333
E. None of the above.
Slide 10-10
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10
Review Question #3--With Answer
 For 2001, Salco (80% owned by Palco) reported
$800,000 of intercompany sales (1/3 markup on
cost) to Palco, which resold $700,000 of this
inventory by 12/31/01. The unrealized profit
at 12/31/01 is:
A. $20,000
B. $25,000 (25% x $100,000 inventory on hand)
C. $26,667
D. $33,333
E. None of the above.
Slide 10-11
Copyright © 2000 by Harcourt, Inc. All rights reserved.