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.

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