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Intercompany transactions should be eliminated for segment reporting.
A. True
B. False

1 Answer

4 votes

Final answer:

Intercompany transactions must be eliminated for segment reporting to prevent double counting and provide a transparent view of a company's financial health to external users.

Step-by-step explanation:

The statement that intercompany transactions should be eliminated for segment reporting is true. For accurate financial reporting, intercompany transactions are indeed eliminated. This is because when consolidating the financial statements of a parent company and its subsidiaries, any transactions between the company's segments (or between the subsidiaries) need to be removed to avoid double-counting and to present a clear and fair view of the company's financial health to external users. Eliminating these transactions ensures that the revenue, expenses, and profits shown in the financial reports reflect only the amounts attributable to external parties, which is crucial for stakeholders who are evaluating the company's performance.

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