Question

PF Consolidated Inc. provided consulting services to its subsidiary, Sessions Athletic Gear, during 2020. PF Consolidated charged $5,000,000 of travel, salary, overhead and supplies costs to its administrative expenses account, and charged Sessions $8,000,000 for the services. By December 31, 2020, the end of PF’s accounting year, Sessions has paid all but $100,000 of the balance due to PF. Sessions categorizes the services as administrative.

Required

a. What balances appear in the December 31, 2020, trial balances of PF and Sessions with respect to these intercompany services? What balances should appear on the consolidated financial statements?

Use negative signs with answers to indicate a Credit (Cr) balance.

Enter answers using all zeros (do not abbreviate answers to millions or thousands).

		PF Consolidated Inc. Dr (Cr)	Sessions Athletic Gear Dr (Cr)	Consolidated Balances Dr (Cr)
Accounts receivable		Answer	Answer	Answer
Accounts payable		Answer	Answer	Answer
Consulting revenue		Answer	Answer	Answer
Administrative expenses		Answer	Answer	Answer

b. Prepare the working paper eliminating entries needed for these intercompany services at December 31, 2020.

Enter answers using all zeros (do not abbreviate answers to millions or thousands).

Description		Debit	Credit
AnswerAccounts payableAccounts receivableAdministrative expensesConsulting revenueEquity in net income of SessionsInvestment in SessionsRetained earnings - Sessions		Answer	Answer
AnswerAccounts payableAccounts receivableAdministrative expensesConsulting revenueEquity in net income of SessionsInvestment in SessionsRetained earnings - Sessions		Answer	Answer
To eliminate intercompany receivables/payables.
AnswerAccounts payableAccounts receivableAdministrative expensesConsulting revenueEquity in net income of SessionsInvestment in SessionsRetained earnings - Sessions		Answer	Answer
AnswerAccounts payableAccounts receivableAdministrative expensesConsulting revenueEquity in net income of SessionsInvestment in SessionsRetained earnings - Sessions		Answer	Answer
To eliminate intercompany revenues/expenses.

Answer 1

Solution:

1. Trial balance of PF Consolidated Inc:

Service Revenue $8000000 (Cr)

Administrative Expenses account $ 5000000 (Dr)

Trade Receivable:

  Sessions Athletic Gear $ 100000 (Dr)

Trial balance of Sessions Athletic Gear:

Service Expenses 8000000 (Dr)

Trade Payable:

PF Consolidated Inc. 100000 (Cr)

Only the Expenses (i.e. $ 5000000 will appear on the Consolidated Financial Statements).

2. 1. Service Revenue A/c dr 8000000

To Service Expenses A/c 8000000

(Being inter-company revenue eliminated)

2. Trade Payable A/c 100000

To Trade Receivable A/c 100000

(Being inter-company due written off).