Question

A parent provides consulting services to its wholly-owned subsidiary during the year. The parent charged the subsidiary $600,000 for the services. The parent's cost of providing the services is $520,000. The companies use service revenue and service expense, as appropriate, to record this transaction on their own books.

The consolidation eliminating entry or entries related to the intercompany services include an adjustment to the subsidiary's accounts as follows:

Select one:

A. a credit to service revenue, $600,000.

B. a debit to service expense, $520,000.

C. a debit to service revenue, $520,000.

D. a credit to service expense, $600,000.

Answer 1

Option (d) is correct.

A credit to service expense, $600000

1. During the year, a parent provides the eonsulting selviees to subsidiary for $600000.
2. Parent charged the subsidiary for the services provided.
3. In consolidation intereompany sales are to be eliminated.
4. It is revenue to the parent company and there is a debit in expense to subsidiary company on receiving the services.
5. On the eonsolidation, eliminating entries would credit the service expense by $600000 which was created.
6. Ellminatmg entries are passed to avoid the transactions between the parent company and subsidiary.