23.03.2023 - 18:58

Which of the following statements about intercompany eliminations is true? a. They are not journalized or posted by any of the subsidiaries. b. They do not affect the ledger accounts of any of the subsidiaries. c. Intercompany eliminations are made sol

Question:

Which of the following statements about intercompany eliminations is true?

a. They are not journalized or posted by any of the subsidiaries.

b. They do not affect the ledger accounts of any of the subsidiaries.

c. Intercompany eliminations are made solely on the worksheet to arrive at correct consolidated data.

d. All of these statements are true.

Answers (1)
  • HooliwoodSmiLe
    April 6, 2023 в 09:30

    The correct answer is (c): Intercompany eliminations are made solely on the worksheet to arrive at correct consolidated data.

    Intercompany eliminations are accounting entries made to remove transactions between companies that are part of the same group, so that the consolidated financial statements reflect only the transactions with third parties.

    Option (a) is incorrect because intercompany eliminations are journalized and posted by the subsidiaries, but they are later eliminated on the consolidation worksheet.

    Option (b) is also incorrect because intercompany eliminations do affect the ledger accounts of the subsidiaries. The purpose of intercompany eliminations is to remove transactions between companies within the group that have been recorded in the subsidiaries' accounts, so that only transactions with third parties are reflected in the consolidated financial statements.

    Option (d) is incorrect because options (a) and (b) are false.

    Therefore, option (c) is the correct answer because intercompany eliminations are made solely on the consolidation worksheet to arrive at the correct consolidated data.

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