Which of the Following Statements Best Describes the Required Accounting

question 47

Multiple Choice

Which of the following statements best describes the required accounting treatment with respect to income taxes on unrealized intercompany profits?

• A) These taxes can be ignored since an increase in income tax expense for one company is offset by an equivalent reduction in income tax expense for the other.
• B) They would be recognized as assets for the purchasing entity and liabilities for the selling entity.
• C) The income tax will be expensed when the profit is realized in accordance with the matching principle.
• D) They would be charged to retained earnings during the preparation of financial statements.

---

Definitions:

Simple Rate

Simple Rate often refers to a straightforward percentage or rate applied in calculations without complications such as tiering or compounding.

New Machine

Refers to the acquisition of a new piece of equipment or machinery intended to increase productivity or efficiency in a manufacturing or operational process.

Payback Period

The amount of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Investment

The allocation of resources, such as capital, time, and effort, in something to earn a return or achieve a goal.