Which of the following statements is true with regard to intercompany transactions?
A) An intercompany transaction is eliminated from consolidated taxable income.
B) All intercompany gains are recognized, but losses must be deferred.
C) A cash sale of a business asset by the purchasing member to an acquirer outside of the group triggers immediate recognition of the gain or loss.
D) The gain or loss on an intercompany transaction is deferred for up to 10 years after which it is recognized.

Question

Quizplus · Accepted Answer

Intercompany transactions are eliminated in consolidation to avoid double counting of income or expenses when preparing consolidated financial statements. However, when an asset is sold to an external party, the gain or loss on that transaction is recognized immediately because it reflects a real economic event from the perspective of the consolidated entity.

Which of the Following Statements Is True with Regard to Intercompany