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Learning Outcomes for this Module Reminder: Analyze intercompany transfers and their elimination

Accounting

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Learning Outcomes for this Module Reminder:

Analyze intercompany transfers and their elimination.

Develop equity-method consolidation entries for a variety of downstream and upstream inventory scenarios.

1. Evaluate concepts associated with intercompany transfers of services and noncurrent assets.
2. Calculate equity-method consolidation entries for a variety of downstream and upstream involving noncurrent asset scenarios.
3. Evaluate concepts associated with intercompany debt transfers.
4. Produce consolidation entries for a variety of intercompany indebtedness scenarios.
5. In addition to the assignment in Connect, please answer the following questions and submit your answers in a Word document:
6. W ith regards to your Assignment performed in Connect, and what you read and learned about in this module, answer the following questions. 

You should refer to the FASB Accounting Standards Codification (FASB ASC), specifically, when answering some of the questions below: 

Hydro Corporation needs to build a new production facility.  Because it already had a relatively high debt ratio, the company decided to establish a joint venture with Rich Corner Bank.  This arrangement permitted the joint venture to borrow $30 million for 20 years on a fixed-interest-rate basis at a rate nearly 2 percent less than Hydro would have paid if it had borrowed the money.  Rich Corner Bank purchased 100% of the joint venture's equity for $200,000, and Hydro provided a guarantee of the debt of the bondholders and a guarantee to Rich Corner Bank that it would earn a 20% annual return on its investment.

As a senior member of Hydro's accounting staff, you have been asked to investigate the financial reporting standards associated with accounting for variable interest entities and determine whether Hydro's reporting is appropriate.  Prepare a memo to Hydro's President stating your findings and conclusions and analyzing the impacts on Hydro's financial statements if the current reporting procedures are inappropriate.  Include citations to or quotations from the authoritative accounting literature including the ASC to support your findings and conclusions.