If the home office bills merchandise shipments to the branch at prices above home office cost, the net income reported to the home office by the branch is overstated from a total company point of view.

Question

Quizplus · Accepted Answer

The net income reported to the home office by the branch would not be overstated from a total company point of view because intercompany transactions, such as merchandise shipments billed above cost, are eliminated in consolidation. The overall net income of the company remains unaffected by the internal pricing strategies between the home office and its branch.

If the Home Office Bills Merchandise Shipments to the Branch