A finished ACC-656 Topic 5 intercompany profit DQ post example, deferring profit held in a subsidiary's unsold inventory and showing how the answer shifts when the sale runs upstream. Searches like "acc 656 topic 5 assignment example", "acc656 topic 5 sample" and "acc-656 topic 5 example" land here.
What a finished ACC-656 Topic 5 intercompany profit DQ post looks like
The post's first sentence states its answer: a group earns nothing by selling to itself, so profit on an internal sale exists only once an outsider buys the goods. Figures are illustrative. The parent sold goods costing $160,000 to its 80 percent subsidiary for $200,000, and at year end the subsidiary still holds 30 percent of them, $60,000 at the transfer price. That inventory contains $12,000 of the parent's profit. The post removes the $200,000 of sales and cost of sales, then defers the $12,000 so consolidated inventory returns to its $48,000 original cost. It then reverses the direction. Had the subsidiary sold to the parent, the deferral would reduce the subsidiary's income and the noncontrolling interest would bear $2,400 of it. A closing question asks what year-end shipments could do to income if nothing were eliminated.
How an ACC-656 Topic 5 example is structured
The post moves from a principle to one shipment, then to a variation and a question. Its opening sentence commits to the single-entity view, so every figure afterward is evidence for a stated position. The shipment follows in two lines: cost, transfer price and the share still unsold. A third passage computes the unrealized profit and gives the two eliminations, sales against cost of sales and the deferral against inventory, with the resulting inventory figure. The upstream variation comes fourth, showing why the direction of the sale decides whether the noncontrolling interest shares the deferral. One citation, to the consolidation requirement in ASC 810, anchors the rule in a sentence. A final line tells classmates when the $12,000 will appear in consolidated income, the following year when outsiders buy the goods, and invites a reply on year-end shipments.
The single-entity view stated first
Its first move is the claim that profit requires an outside buyer, which gives classmates a principle to test against the shipment rather than a rule to accept.
Unrealized profit computed from the shipment
Thirty percent of a $200,000 transfer remains unsold, and at the 20 percent gross margin the parent earned, that inventory holds $12,000 of profit the group has not realized.
Two eliminations, each with its purpose
Removing sales and cost of sales stops the group reporting revenue twice, and deferring the $12,000 returns inventory to what the group actually paid for it.
Direction of the sale changes who bears it
An upstream sale would place the deferral in the subsidiary's income, so the noncontrolling interest absorbs $2,400 of it, while a downstream sale leaves it with the parent.
The deferral traced into next year
The post notes that the $12,000 is recognized when outsiders buy the goods, so the elimination shifts profit between years rather than erasing it.
Where marks go in ACC-656 Topic 5
Posts on this question lose most when they assert the elimination rule and never explain it. Quoting the consolidation requirement answers what the rule is, which the question already assumes, and leaves the reasoning the thread exists for untouched. A post that removes the intercompany sales but leaves the $12,000 in inventory overstates both group income and group assets, and this is the arithmetic markers check first. Eliminating the full $40,000 of profit, when 70 percent of the goods have already been sold to outsiders, defers profit the group has earned. Treating upstream and downstream sales identically ignores the noncontrolling interest's share in one of them. Replies that simply restate the rule add little, and in many sections a reply that tests a classmate's figures or direction earns considerably more.
Get an ACC-656 Topic 5 example written to your instructions
Send the ACC-656 Topic 5 discussion question, the participation rubric and any intercompany figures your section is using. We write a custom example to those, with the single-entity reason stated first, unrealized profit computed from the facts, both eliminations explained, the upstream case distinguished and a reply prompt ready, in 24 to 48 hours. The first one is free.
ACC-656 Topic 5 questions, answered
Is the profit lost, or only delayed?
Delayed. The $12,000 is removed this year because the goods are still inside the group, and it is recognized in consolidated income in the period when the subsidiary sells them to an outside customer. Over the life of the goods, total consolidated profit is the same as if the internal sale had never happened. Elimination moves profit to the period in which the group actually earned it.
Why does the direction of the sale matter?
Because the profit sits in the seller's books. On a downstream sale the parent earned it, so the deferral reduces the parent's share of income and the noncontrolling interest is unaffected. On an upstream sale the subsidiary earned it, and since outside shareholders own part of the subsidiary, they bear their percentage of the deferral. Many rubrics test this distinction specifically.
Does this apply to sales of equipment as well as inventory?
Yes, with one difference. A gain on equipment sold within the group is deferred and then recognized gradually over the asset's remaining life, through the lower depreciation the group records compared with the buyer's books. Inventory profit is usually recognized in one step when the goods leave the group. Later topics often take up equipment transfers, and the reasoning is the same.