Postage Corporation receives management consulting services from its 92 percent-owned subsidiary,Stamp Inc.During 20X7,Postage paid Stamp $125,432 for its services.For the year 20X8,Stamp billed Postage $140,000 for such services and collected all but $7,900 by year-end.Stamp's labor cost and other associated costs for the employees providing services to Postage totaled $86,000 in 20X7 and $121,000 in 20X8.Postage reported $2,567,000 of income from its own separate operations for 20X8,and Stamp reported net income of $695,000.
-Based on the preceding information,what amount of receivable/payable should be eliminated in the 20X8 consolidated financial statements?

Question

Quizplus · Accepted Answer

Postage paid Stamp $140,000 for management consulting services in 20X8, but Stamp collected only $132,100 ($140,000 - $7,900) by year-end. This means that Postage owes Stamp $7,900 for services provided but not yet paid for. Therefore, the amount of payable that should be eliminated in the 20X8 consolidated financial statements is $7,900, as stated in choice B. The other answer choices do not accurately reflect the information provided in the problem.

Postage Corporation Receives Management Consulting Services from Its 92 Percent-Owned