Which of the Following Events Is an Intercompany Transaction That

question 47

Multiple Choice

Which of the following events is an intercompany transaction that requires the deferral and later recognition of income?

• A)accrual of rentals on a lease of real property owned by one group member that is used by another group member; both group members use the accrual method of accounting
• B)cash dividend payment from a subsidiary corporation to its parent corporation
• C)sale of inventory from a subsidiary corporation to its parent corporation
• D)None of the above transactions require the deferral and later recognition of income.

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Definitions:

Profit

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Marginal Cost

The escalation in cumulative price involved in fabricating one extra unit of a product or service.

Average Revenue

The amount of income generated per unit of sale or service offered, calculated by dividing total revenue by the number of units sold.

Profit Maximizes

The process by which a firm determines the price and output level that leads to the highest profit.