Question

Consolidated financial statements are being prepared for Behemoth Corporation and its two wholly-owned subsidiaries that have intercompany loans of $50,000 and intercompany profits of $100,000. How much of these intercompany loans and profits should be eliminated?

Answer 1

The answer is: All the intercompany loans and profits should be eliminated.

Step-by-step explanation:

Since Behemoth Corporation is preparing consolidated financial statements that include the parent company and its two subsidiaries, it can not record any type of debt between them (my right pocket can not owe money to my left pocket) or any type of profit between them either.