Question

Portland Corporation owns 75% of Seattle Corporation's outstanding common stock. Seattle owed Portland $50,000 on account....

Portland Corporation owns 75% of Seattle Corporation's outstanding common stock. Seattle owed Portland $50,000 on account. What portion of the account should be eliminated in preparation of the December 31, 2018, balance sheet?

   a. $50,000.        b. $37,500.        c. $12,500.        d. $0.

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Answer #1

a - $50,000

During the preparation of consolidated financial statements, the underlying assumption is that both the Holding co. and the subsidiary are, in substance, a single entity and it is a thumb rule that one cannot owe money to self. Therefore while preparation of consoildated financial statements, mutual owings if any, are to be elimanated because such owings merely inflate the figuers of debtors and creditors and in substance have no economic impact

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