Which of the Following Statements Is True with Regard to Intercompany

question 48

Multiple Choice

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

• A)The gain or loss on an intercompany transaction never is taxed.
• B)An intercompany transaction is eliminated from consolidated taxable income.
• C)All intercompany gains are recognized,but losses must be deferred.
• D)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.
• E)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:

Acquisition Cost

The total cost incurred to acquire an asset, including the purchase price and all other expenses necessary to bring the asset into its intended use.

Available-for-Sale Securities

Financial assets that are neither held for trading purposes nor intended to be held to maturity, which can be sold in response to liquidity needs.

Held-to-Maturity Securities

Financial assets that the holder has the positive intent and ability to hold until a specified maturity date.

Debt Securities

Financial instruments that signify amounts owed by the issuer to the holder and include terms regarding repayments and interest rates.