A parent charges $800,000 for services provided to a subsidiary and reports this amount as service revenue. The price reflects a markup of 25% over cost. Both companies report service expenses as part of operating expenses. What eliminating entry is necessary with respect to this intercompany transaction?

Question

Quizplus · Accepted Answer

Debit service revenue, credit operating expenses for $800,000In consolidating the financial statements of a parent and its subsidiary, intercompany transactions must be eliminated to avoid double counting. Since the parent charged the subsidiary $800,000 for services, this amount should be eliminated from both the service revenue of the parent and the operating expenses of the subsidiary to accurately reflect the consolidated financial position.

A Parent Charges $800,000 for Services Provided to a Subsidiary