What Effect Will the Adjustment for the Realization of the Intercompany

question 5

Multiple Choice

What effect will the adjustment for the realization of the intercompany gain (in the preparation of the consolidated income statement) have on consolidated income tax expense for 2017?

• A) It will have no effect.
• B) It will reduce income tax expense by $24,000.
• C) It will reduce income tax expense by $18,000.
• D)It will increase income tax expense by $24,000.

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Definitions:

Loan Principal

The initial size of the loan or the amount of money borrowed that is still owed, not including interest.

Low-credit-risk Company

A company deemed to have a minimal risk of defaulting on its debt obligations, often due to strong financial health and stability.

Operating Cash Flows

Cash generated from the core business activities of a company, excluding investing and financing activities.

Cash Flows

Financial statement entries that represent the net amount of cash and cash equivalents being transferred into and out of a business.