During the current year, a parent provides services costing it $100,000 to its wholly-owned subsidiary, charging $140,000 for the services. At year-end, the subsidiary still owes the parent $5,000 for these services. How do these intercompany transactions affect the parent's equity in income for the year, assuming the parent uses the complete equity method to report its investment on its own books?

Question

Quizplus · Accepted Answer

Under the complete equity method, intercompany transactions, such as the sale of services from a parent to its wholly-owned subsidiary, are eliminated in consolidation. Therefore, the markup on the services and any outstanding balances do not affect the parent's equity in income for the year.

During the Current Year, a Parent Provides Services Costing It