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Subject Topic: Combined FS question (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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hanhan2008
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Posted: 09 Nov 2009 at 23:20 | IP Logged  

Mr. Cord owns four corporations. Combines FS are being prepared for these corporations, which have interco loans of $200K and interco profits of $500K. What amount of these interco loans and profits should be included int the combined FS?

Answer: Loan:$0, profit: $0

I selected the correct answer, but after I read the below quoted from Becker, I got confused:

"1. interco transactions and balances among companies eliminated
2. minority int. be treated like consolidated FS
3.Capital stock and retained earnings by "added across" not "eliminated"
4.income statement be "added across" ""

My question is: profit is one category shown up on the I/S, here the answer indicates that interco profit should be eliminated, but #4 above says I/S be "added across", does it mean we may still "eliminate" some item? Could anyone give me an example about how the IS is "added across"? Thanks!


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Zeratul
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Posted: 10 Nov 2009 at 05:42 | IP Logged  

All it means is that you remove the investment in sub account from the parent's books (intercompany income) and consolidate revenues and expenses line by line ("add across"), also taking into account any amortization of fair value over book value. So, for example, Sales Revenue of parent would be added to that of sub to determine consolidated Sales Revenue.
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hanhan2008
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Posted: 11 Nov 2009 at 12:34 | IP Logged  

Got it. Thanks a lot!

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