Intercompany debt, both long term and short term, arises frequently. In some cases, intercorporate borrowings may arise because one affiliate can borrow at a cheaper rate than others, and lending to other affiliates may reduce the overall cost of borrowing. In other cases, intercompany receivables/payables arise because of intercompany sales of goods or services or other types of intercompany transactions.
a. What major problem might arise with intercompany debt between a domestic parent and a foreign subsidiary or between subsidiaries in different countries? How has The Hershey Company dealt with this problem?
b. Did The Hershey Company's intercompany loans arise because of direct loans or because of intercompany sales of goods and services on credit?