Which of the Following Statements Is True with Regard to Intercompany

question 98

Multiple Choice

Which of the following statements is true with regard to intercompany transactions?

• A)An intercompany transaction is eliminated from consolidated taxable income.
• B)All intercompany gains are recognized, but losses must be deferred.
• C)A cash sale of a business asset by the purchasing member to an acquirer outside of the group triggers immediate recognition of the gain or loss.
• D)The gain or loss on an intercompany transaction is deferred for up to ten years, after which it is recognized.

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Definitions:

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product and are a significant component of the total manufacturing cost.

Variable Manufacturing Overhead

Costs involved in the manufacturing process that fluctuate with the level of production, such as utility expenses or materials costs.

Absorption Costing

An accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Absorption Costing

This method includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.