When Are Gains on Intercompany Transfers of Assets Between an Investor

question 16

Multiple Choice

When are gains on intercompany transfers of assets between an investor and a significant influence investment recognized as part of the investment income accounted for by the parent under the equity method?

• A) In the period when the intercompany transfer takes place.
• B) In the period(s) when the assets are sold to third parties or consumed.
• C) They are never recognized.
• D)They are recognized only when the investment is sold.

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Definitions:

Advantage

A condition or circumstance that puts a company or situation in a favorable or superior position compared to competitors.

Transfer Price

The price at which divisions of a company transact with each other, such as the exchange of supplies or labor between departments.

Market Price

The current price at which an asset or service can be bought or sold.

Variable Cost

Expenses that change in proportion to the production or sales figures, like labor and materials.