A gain or loss on sales downstream from parent to subsidiary is initially included in parent income and must be 100% eliminated.

Question

Quizplus · Accepted Answer

When a parent sells goods to a subsidiary (downstream transaction), any gain or loss recognized on the sale is initially included in the parent's income. However, for consolidated financial statement purposes, this gain or loss must be fully eliminated to avoid overstating revenues and profits, as the transaction is internal to the consolidated entity.

A Gain or Loss on Sales Downstream from Parent to Subsidiary