One complication that arises in consolidation when the parent and subsidiary have filed separate tax returns is:

Question

One complication that arises in consolidation when the parent and subsidiary have filed separate tax returns is:​

Quizplus · Accepted Answer

When the parent and subsidiary have filed separate tax returns, they may have different timing for the recognition of intercompany profits in inventory. This creates timing differences in consolidation, which need to be accounted for to ensure accurate financial reporting. Option B is incorrect because both the parent and subsidiary would not incur taxes on the same item. Option C is also incorrect because there is no requirement to set up a special tax reserve in owners' equity when the parent and subsidiary have filed separate tax returns. Option D is incorrect as option A is the correct answer.

One Complication That Arises in Consolidation When the Parent and Subsidiary