Phil Company leased a machine to its 100%-owned subsidiary, Scout Company.The direct financing lease required annual lease payments in advance of $2,319 for 5 years.The present value of the minimum lease payments at 8% interest is $10,000.The adjustment needed to arrive at consolidated net income for the first year after the lease is ____.

Question

Quizplus · Accepted Answer

In a consolidated financial statement, transactions between the parent company and its 100%-owned subsidiary are eliminated. Since Phil Company and Scout Company are part of the same consolidated entity, the lease transaction between them does not impact the consolidated net income.

Phil Company Leased a Machine to Its 100%-Owned Subsidiary, Scout