e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
Chapter 7
(A) Intercompany Profits in
Depreciable Assets
(B) Intercompany Bondholdings
Copyright © 2019 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 7 1
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
A brief description of the major points covered in each case and problem.
CASES
Case 7-1
In this case, students are asked to compare the accounting for an intercompany transaction
depending on whether the investee company was a controlled entity, a significantly influenced
entity, or a related party.
Case 7-2
In this case, students are asked to discuss how a loss on intercompany bondholding should be
allocated to the parent and/or to the subsidiary.
Case 7-3
In this real-life case, students are asked to determine the economic benefits of transferring a
machine from the subsidiary to the parent to increase the tax savings from depreciation expense.
The case also requires a discussion of various alternatives for reporting the tax savings on the
consolidated income statement.
Case 7-4
In this case taken from a CPA exam, students are asked to prepare a memo for the partner to
address the accounting implications and disclosure requirements for transactions involving
convertible debentures and spin off of a division from a subsidiary to the parent and then to a
newly created subsidiary.
Case 7-5
In this case taken from a CPA exam, students are asked to discuss accounting issues involving
revenue recognition related to multiple deliverables, intercompany transactions involving
depreciable assets, inventory valuation and asset retirement obligation.
Case 7-6
In this case taken from a CPA exam, students are asked to prepare a memo for the partner to
address the accounting issues for a new client in the waste management business. The
accounting issues include intercompany transactions in capital assets, revenue recognition,
contingencies and capitalization of expenditures.
Copyright © 2019 McGraw-Hill Education. All rights reserved.
2 Modern Advanced Accounting in Canada, Ninth Edition
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
PROBLEMS
Problem 7-1 (15 min.)
This is a relatively short problem requiring the reconstruction of the investment account when the
parent used the equity method. Unrealized profit transactions in depreciable assets made by both
companies are involved.
Problem 7-2 (20 min.)
This question requires the preparation of a consolidated income statement when the parent has
used the cost method and where the realization of an unrealized profit in depreciable assets is
involved.
Problem 7-3 (30 min.)
This problem consists of two-year consolidated income statements that have been incorrectly
prepared and require correcting. Intercompany transactions and unrealized intercompany profits
in depreciable assets have been overlooked.
Problem 7-4 (30 min.)
This problem involves intercompany sales of equipment. It requires the calculation of account
balances for specified accounts and two scenarios: 1) intercompany transactions were
downstream and 2) intercompany transactions were upstream.
Problem 7-5 (40 min.)
This problem focuses on a single transaction involving the intercompany sale of equipment. It
contrasts the differences between an upstream and downstream transaction. It also compares
the results when reporting under cost, equity, and consolidated bases.
Problem 7-6 (80 min.)
The preparation of a consolidated balance sheet and consolidated retained earnings statement
when the parent has used the cost method is required. There are unrealized profits in inventories
and land involved as well as intercompany bondholdings, which are accounted for using the
effective-interest method. The question also requires the preparation of the year’s equity method
journal entries, an explanation of why deferred income taxes arise with the elimination of
Copyright © 2019 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 7 3
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
intercompany bondholdings and an explanation as to how the identifiable net assets method
would affect the debt to equity ratio.
Problem 7-7 (30 min.)
This problem involves intercompany sales of equipment. It requires the preparation of a
consolidated income. Then, students are asked to explain the impact on the separate entity and
consolidated financial statements when the parent changes to the equity method from the cost
method and from a wholly-owned to partially-owned subsidiary.
Problem 7-8 (35 min.)
The preparation of a consolidated income statement is required when the parent has used the
equity method of accounting. Unrealized profits in depreciable and nondepreciable assets as well
as inventories are involved. Every line on the income statement requires adjustment in the
consolidation process. The preparation of the parent’s income statement under the cost method
is also required.
Problem 7-9 (35 min.)
The preparation of a consolidated statement of financial position is required when the parent has
used the equity method and there are intercompany bondholdings and intercompany profits in a
depreciable asset. NCI is measured at the date of acquisition using the fair value as determined
by an independent business valuator.
Problem 7-10 (70 min.)
A comprehensive problem that involves all the consolidation adjustments taken to the end of Part
A of Chapter 7.
Problem 7-11 (35 min.)
This problem involves equity method journal entries and the calculation of selected accounts
when there are intercompany bondholdings, which are accounted for using the effective-interest
method.
Problem 7-12 (35 min.)
This problem requires the preparation of a consolidated income statement when the parent has
used the cost method and there are intercompany bondholdings.
Copyright © 2019 McGraw-Hill Education. All rights reserved.
4 Modern Advanced Accounting in Canada, Ninth Edition
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
Chapter 7
(A) Intercompany Profits in
Depreciable Assets
(B) Intercompany Bondholdings
Copyright © 2019 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 7 1
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
A brief description of the major points covered in each case and problem.
CASES
Case 7-1
In this case, students are asked to compare the accounting for an intercompany transaction
depending on whether the investee company was a controlled entity, a significantly influenced
entity, or a related party.
Case 7-2
In this case, students are asked to discuss how a loss on intercompany bondholding should be
allocated to the parent and/or to the subsidiary.
Case 7-3
In this real-life case, students are asked to determine the economic benefits of transferring a
machine from the subsidiary to the parent to increase the tax savings from depreciation expense.
The case also requires a discussion of various alternatives for reporting the tax savings on the
consolidated income statement.
Case 7-4
In this case taken from a CPA exam, students are asked to prepare a memo for the partner to
address the accounting implications and disclosure requirements for transactions involving
convertible debentures and spin off of a division from a subsidiary to the parent and then to a
newly created subsidiary.
Case 7-5
In this case taken from a CPA exam, students are asked to discuss accounting issues involving
revenue recognition related to multiple deliverables, intercompany transactions involving
depreciable assets, inventory valuation and asset retirement obligation.
Case 7-6
In this case taken from a CPA exam, students are asked to prepare a memo for the partner to
address the accounting issues for a new client in the waste management business. The
accounting issues include intercompany transactions in capital assets, revenue recognition,
contingencies and capitalization of expenditures.
Copyright © 2019 McGraw-Hill Education. All rights reserved.
2 Modern Advanced Accounting in Canada, Ninth Edition
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
PROBLEMS
Problem 7-1 (15 min.)
This is a relatively short problem requiring the reconstruction of the investment account when the
parent used the equity method. Unrealized profit transactions in depreciable assets made by both
companies are involved.
Problem 7-2 (20 min.)
This question requires the preparation of a consolidated income statement when the parent has
used the cost method and where the realization of an unrealized profit in depreciable assets is
involved.
Problem 7-3 (30 min.)
This problem consists of two-year consolidated income statements that have been incorrectly
prepared and require correcting. Intercompany transactions and unrealized intercompany profits
in depreciable assets have been overlooked.
Problem 7-4 (30 min.)
This problem involves intercompany sales of equipment. It requires the calculation of account
balances for specified accounts and two scenarios: 1) intercompany transactions were
downstream and 2) intercompany transactions were upstream.
Problem 7-5 (40 min.)
This problem focuses on a single transaction involving the intercompany sale of equipment. It
contrasts the differences between an upstream and downstream transaction. It also compares
the results when reporting under cost, equity, and consolidated bases.
Problem 7-6 (80 min.)
The preparation of a consolidated balance sheet and consolidated retained earnings statement
when the parent has used the cost method is required. There are unrealized profits in inventories
and land involved as well as intercompany bondholdings, which are accounted for using the
effective-interest method. The question also requires the preparation of the year’s equity method
journal entries, an explanation of why deferred income taxes arise with the elimination of
Copyright © 2019 McGraw-Hill Education. All rights reserved.
Solutions Manual, Chapter 7 3
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
,e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))
intercompany bondholdings and an explanation as to how the identifiable net assets method
would affect the debt to equity ratio.
Problem 7-7 (30 min.)
This problem involves intercompany sales of equipment. It requires the preparation of a
consolidated income. Then, students are asked to explain the impact on the separate entity and
consolidated financial statements when the parent changes to the equity method from the cost
method and from a wholly-owned to partially-owned subsidiary.
Problem 7-8 (35 min.)
The preparation of a consolidated income statement is required when the parent has used the
equity method of accounting. Unrealized profits in depreciable and nondepreciable assets as well
as inventories are involved. Every line on the income statement requires adjustment in the
consolidation process. The preparation of the parent’s income statement under the cost method
is also required.
Problem 7-9 (35 min.)
The preparation of a consolidated statement of financial position is required when the parent has
used the equity method and there are intercompany bondholdings and intercompany profits in a
depreciable asset. NCI is measured at the date of acquisition using the fair value as determined
by an independent business valuator.
Problem 7-10 (70 min.)
A comprehensive problem that involves all the consolidation adjustments taken to the end of Part
A of Chapter 7.
Problem 7-11 (35 min.)
This problem involves equity method journal entries and the calculation of selected accounts
when there are intercompany bondholdings, which are accounted for using the effective-interest
method.
Problem 7-12 (35 min.)
This problem requires the preparation of a consolidated income statement when the parent has
used the cost method and there are intercompany bondholdings.
Copyright © 2019 McGraw-Hill Education. All rights reserved.
4 Modern Advanced Accounting in Canada, Ninth Edition
e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!))))))))))))(((((((((((((((((((((())))))))))))))))))))))))))!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~~~~~~)!@!@@
20211031173938_617ed4da4f2e1_ch720211031173938_617ed4da4f2e1_ch7.docx@@@@@@@@@@@@!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
