Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 35

Your friend is a noncontrolling interest shareholder in a large company. He knows that the subsidiary company leases most of its assets from the parent company under operating leases. He further believes that the lease rates are in excess of market rates. He made his concern known to the parent company management. Their response was: ''Don't worry about it; it washes out in the consolidation process and ends up having no effect on income.'' Your friend wants to know if this is true and if he was wrong to be concerned.