When an interest bearing loan is advanced by a parent to a subsidiary, there is no tax effect consolidation entry required as assets and liabilities are reduced equally.

Question

Quizplus · Accepted Answer

This statement is true. When a parent advances an interest-bearing loan to a subsidiary, no tax effect consolidation entry is required as both assets and liabilities are reduced equally. This is because the loan is eliminated in consolidation and both the parent and subsidiary already recognize the interest income and expense in their separate financial statements.

When an Interest Bearing Loan Is Advanced by a Parent