BU487 Chapter Notes - Chapter 6: Income Tax, Revenue Recognition, Retained Earnings
Document Summary
A transaction with the coin dealer at an arm"s length transaction (ie. with an outsider: sales, cogs. Revenue is recognized when it is earned in a transaction with an outsider in accordance with the revenue recognition principle. The cost of the coin is expensed in the same period as the revenue in accordance with the matching principle. Sales and cost of sales are will be overstated because intercompany sales and purchases have not yet been eliminated. Parent lends ,000 to the subsidiary company and receives a note payable on demand with interest at 10% annually. These transactions are recorded on the separate entity books of the parent and the subsidiary: consolidated net income does not change when we eliminate an equal amount of revenue and expense. Intercompany management fees: often the parent will charge its subsidiary companies a yearly management fee as a means of allocating head office costs to all the companies within the group.
