Pal Co Owns 70% of the Outstanding Common Shares of Sadd

question 10

Multiple Choice

Pal Co. owns 70% of the outstanding common shares of Sadd Ltd. Sadd sold an asset to Pal at a loss. There is no evidence of impairment in the value of the asset sold to Pal. Which of the following statements about the loss is true?

• A)The loss should not be eliminated because this is an upstream sale.
• B)The loss should not be eliminated because there is no impairment in the value of the asset.
• C)The loss should not be eliminated because Pal does not own 100% of Sadd.
• D)The loss should be eliminated.

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Definitions:

Segment Margin

The amount of profit or loss generated by a particular segment of a business, considering only the revenues and costs directly attributable to the segment.

Absorption Costing

A financial recording technique that incorporates all expenses related to production, such as direct materials, direct labor, and variable as well as fixed manufacturing overhead costs, into the product's cost.

Unit Product Cost

The total cost (direct materials, direct labor, and overhead) assigned to a single unit of product.

Segment CM Ratio

The ratio of a business segment's contribution margin to its sales, indicating the profitability and efficiency of that segment.