Final answer:
The elimination entry for intercompany services where a subsidiary overcharged its parent would include removing the excess profit proportionate to the parent's ownership percentage from the consolidated financial statements.
Step-by-step explanation:
When considering the elimination entry related to intercompany services involving a 60% owned subsidiary that provided services costing $300,000 and charged $750,000 to its parent company, the elimination entry will include removing the excessive revenue recognized by the parent company from the subsidiary's perspective.
Since the subsidiary overcharged, an elimination entry must reduce that revenue and the corresponding expense in the parent's books.
The profit recognized on this intercompany transaction is $450,000 ($750,000 - $300,000), but because the parent only owns 60%, the excess profit to be eliminated will be proportionate, so $270,000 ($450,000 x 60%) of internal profit needs to be eliminated to properly consolidate the financial statements.
The elimination entry that should be made for the intercompany services is to eliminate the revenue and expense related to these services. Since the subsidiary charged the parent $750,000 for the services, this amount needs to be eliminated from the parent's revenue and the subsidiary's expense.
The entry would be:
Elimination Entry:
Parent's revenue (eliminated): $750,000
Subsidiary's expense (eliminated): $750,000