Which of the Following Statements Is True with Regard to Intercompany

question 41

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 10 years after which it is recognized.

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Definitions:

Return On Equity

An assessment of a firm's efficiency in producing profit from its shareholders' investments.

Financial Leverage

The use of borrowed funds ("debt") to amplify returns from an investment or project.

Price Earnings Ratio

A financial metric comparing the current price of a company's stock to its earnings per share to assess whether the stock is undervalued or overvalued.

Earnings Per Share

A financial ratio that measures the amount of a company's profit allocated to each outstanding share of common stock.