Intercompany Profits Case Study Example | Topics and Well Written Essays - 750 words

Intercompany Profits - Case Study Example There are factors that the company considers in deriving the method to use, such as ownership and influence. In this case, the analysis of the subsidiaries is included in the consolidated financial statements. The principles of accounting state that the intercompany inventory transfers, such as a transfer between Verizon Wireless and Wireline, must eliminate all the revenues and expenses recorded by the involved parties in the preparation of the consolidated income statement. The profits or losses that are accrued in the transfer of inventory are deferred, to the point where the inventory is sold to a non-affiliate (Christensen, Cottrell, & Baker, 2013). The intercompany profits that are realized by Verizon and its subsidiaries are considered as a single entity to ensure that the only historical cost of the inventory is included in the business’s balance sheet. As such, the profits that may be realized by the parent company (Verizon) are eliminated until when the goods are sold to a non-affiliate. In preparation of the consolidated financial report, the gross profit that is realized by Verizon is only when the inventory has been sold to a non-subsidiary since the intercompany profit s are eliminated. Arguments are that, in the inventory inter-transfer, regardless of the price at which the exchange has taken place, no actual profits have been realized, from the consolidated perspective, but the profit is realized upon reselling of inventory to non-affiliates (Christensen et al., 2013). Verizon eliminates all the intercompany profits, as it no longer applies the provisions and regulatory accounting provided by the FASB 71 (1994). Harley-Davidson is registered as the parent company to two businesses. The Harley-Davidson Motor Company (HDMC) deals with motorcycles and related products while the Harley-Davidson Financial Services (HDFS) provides financially related services to other clients. In Harley-Davidson’s consolidated statements, the  entities are sourced from both company subsidiaries and other owned entities by the company.