Answered

At Westonci.ca, we provide clear, reliable answers to all your questions. Join our vibrant community and get the solutions you need. Join our Q&A platform to get precise answers from experts in diverse fields and enhance your understanding. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

When a parent company sells land to a subsidiary at more than book value, the consolidation entries at the end of the period include a debit to the gain on the sale of land. When a parent purchases the bonds of a subsidiary from a nonaffiliate at less than book value, the consolidation entries at the end of the period contain a credit to a gain on bond retirement. Why are these two situations not handled in the same manner on the consolidation worksheet

Sagot :

anthougo

Answer:

The reasons for these two situations not handled similarly are:

1. The first case involving the sale of land is a transaction between a parent and its subsidiary.  Their accounts are consolidated with gains from intercompany transactions eliminated because a parent company cannot recognize gains from sales to itself (group).  This implies that all intercompany gains can only be recognized when the sales involve external or non-affiliated entities.

2. In the second case, there is no parent-subsidiary relationship since one organization is described as a non-affiliate.  Therefore, there is no need to eliminate the intercompany profit arising from the transaction.  Instead, the gain is recognized.

Explanation:

The accounts of companies that are under common control are consolidated by the parent entity.  Therefore, during the consolidation process, it becomes necessary to eliminate all intercompany transactions that have not been externally affected.

We appreciate your visit. Hopefully, the answers you found were beneficial. Don't hesitate to come back for more information. Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Thank you for choosing Westonci.ca as your information source. We look forward to your next visit.