Parent and Subsidiary Corporations Have Filed Calendar- Year Consolidated Tax

question 45

Multiple Choice

Parent and Subsidiary Corporations have filed calendar- year consolidated tax returns for several years. Parent Corporation uses the cash method of accounting while Subsidiary Corporation uses the accrual method of accounting. If Parent lends Subsidiary money,

• A) the interest expense is deductible when accrued.
• B) the interest income is reported when the interest expense is accrued by Subsidiary.
• C) the interest expense and interest income may be reported in different consolidated return years.
• D) the interest expense deduction is taken when Parent reports the interest income.

---

Definitions:

AASB 116

An Australian Accounting Standards Board standard detailing the accounting treatment for property, plant, and equipment.

IAS 16

An International Accounting Standard that prescribes the accounting treatment for property, plant, and equipment including their recognition, determination of their carrying amounts, and the depreciation charges and impairment losses to be recognized in relation to them.

Government Grants

Financial assistance from the government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.

AASB 41

The Australian Accounting Standards Board’s standard related to agriculture, which outlines how agricultural companies should account for and report their agricultural activity.