During 2018, a parent company billed its 100%-owned subsidiary for computer services at the rate of $1,000 per month.At year end, one month's bill remained unpaid.As a part of the consolidation process, net income
A)should be reduced $12,000.
B)should be reduced $1,000.
C)needs no adjustment.
D)needs an adjustment, but the amount is not provided by this information.

Question

During 2018, a parent company billed its 100%-owned subsidiary for computer services at the rate of $1,000 per month.At year end, one month's bill remained unpaid.As a part of the consolidation process, net income
A)​should be reduced $12,000.
B)​should be reduced $1,000.
C)​needs no adjustment.
D)​needs an adjustment, but the amount is not provided by this information.

Quizplus · Accepted Answer

In consolidation, transactions between a parent company and its 100%-owned subsidiary are eliminated because they are intra-group transactions and do not affect the consolidated net income. The billing for computer services and the unpaid bill are internal transactions and thus do not impact the consolidated financial statements.

During 2018, a Parent Company Billed Its 100%-Owned Subsidiary for Computer