In the case of human relations, marriages occur frequently. Once the business combination occurs, the assets and liabilities of the company become one. This is the same when a parent company buys a subsidiary corporation. You have noticed in your reading that intercompany transfers must be adjusted. With this in mind, answer the following questions:

Why are adjustments necessary for intercompany transfers?

What are some ways the financials would be misstated if these intercompany transfers were not adjusted?

Provide an example on how a firm could manipulate the firm’s financial position and how these intercompany entries fix this problem.

Answer rating: 100% (QA)

An intercompany transaction occurs when one unit of an entity is involved in a transaction with another unit of the same entity While these transactions can occur for a variety of reasons they often o... View the full answer