1. For intercompany merchandise sales, how do the consolidation eliminating entries differ between upstream and downstream sales? A. Sales revenue from upstream sales are eliminated but sales revenue from downstream sales are not. B. Confirmed intercompany profit on downstream beginning inventory is debited to investment in subsidiary, while it is debited to beginning retained earnings for upstream beginning inventory. C. The difference between intercompany profit on ending inventory and beginning inventory is an adjustment to investment in subsidiary for downstream sales but it is an adjustment to retained earnings for upstream sales. D. Unconfirmed intercompany profit on upstream ending inventory is debited to beginning retained earnings, while it is debited to investment in subsidiary for downstream sales.

Question

Business

Akira Pitts

23 December, 17:17

1. For intercompany merchandise sales, how do the consolidation eliminating entries differ between upstream and downstream sales? A. Sales revenue from upstream sales are eliminated but sales revenue from downstream sales are not. B. Confirmed intercompany profit on downstream beginning inventory is debited to investment in subsidiary, while it is debited to beginning retained earnings for upstream beginning inventory. C. The difference between intercompany profit on ending inventory and beginning inventory is an adjustment to investment in subsidiary for downstream sales but it is an adjustment to retained earnings for upstream sales. D. Unconfirmed intercompany profit on upstream ending inventory is debited to beginning retained earnings, while it is debited to investment in subsidiary for downstream sales.

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Answers (2)

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Rory Larson · Answer 1

b. Confirmed inter-company profit on downstream beginning inventory is debited to investment in subsidiary, while it is debited to beginning Retained earnings for upstream beginning inventory.

Explanation:

unconfirmed earnings from previous year's closing inventory, when confirmed in the current year are retained earnings and are eliminated hence debit Retained Earnings

Molly Hodge · Answer 2

D. Unconfirmed intercompany profit on upstream ending inventory is debited to beginning retained earnings, while it is debited to investment in subsidiary for downstream salesnconfirmed intercompany profit on upstream ending inventory is debited to beginning retained earnings, while it is debited to investment in subsidiary for downstream sales

Explanation:

An upstream sales is a term that describe a situation whereby a subsidiary company sells products or services to its parent company, while the downstream sales is termed as a situation whereby the parents company sells goods or services to one of its subsidiaries company.

However, because such intercompany transaction sales shows no actual gain or loss to the company, it is termed as Unconfirmed Profit or Unrealized Profit, thus, there is need to eliminate it from the book of consolidation entity.

Therefore the major difference on how consolidated entries differs between the upstream sales and downstream sales is the treatment of unrealized profit.

Hence, unconfirmed or unrealized intercompany profit on upstream sales of inventory will be debited to beginning retained earnings, while the unrealized or unconfirmed profit from downstream sales will be debited to investment.