Question

ParCorp owns 100% of ChiCorp's common stocks. ChiCorp owes ParCorp $10K. In no more than 10...

ParCorp owns 100% of ChiCorp's common stocks. ChiCorp owes ParCorp $10K. In no more than 10 words, explain why intra-group accounts receivable and accounts payable must be eliminated in consolidation.

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Answer #1

Intra-group accounts receivable and accounts payable must be eliminated in consolidation because fairly present the group company as a whole. The receivable of one entity would be a payable for another entity within the samegroup. Therefore, if they are not eliminated, the financial position would be overstated and present a unfair picture of the group company as a whole. Therefore, for better presentation purpose, they have to be eliminated in consolidation.

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