P Ltd provides management services to its subsidiary company S Ltd for $150 000 per year. At the end of the current year, S Ltd owes $70 000 of this fee. The entry required on consolidation is: a. Dr. Management Fee Revenue $150 000 Cr. Management Fee Expense $150 000 b. Dr. Management Fee Revenue $150 000 Cr. Management Fee Expense $150 000Dr. Accrued Fees Payable $70 000 Cr. Accrued Fees Receivable $70 000 c. Dr. Management Fees Revenue $70 000 Cr. Management Fees Expense $70 000 d. none of the above.
Question
P Ltd provides management services to its subsidiary company S Ltd for 70 000 of this fee. The entry required on consolidation is: a. Dr. Management Fee Revenue 150 000 b. Dr. Management Fee Revenue 150 000Dr. Accrued Fees Payable 70 000 c. Dr. Management Fees Revenue 70 000 d. none of the above.
Solution
The correct answer is d. none of the above.
Here's why:
When consolidating financial statements, transactions between the parent company and its subsidiaries are eliminated to avoid double counting. This is because the consolidated financial statements are supposed to present a picture as if the parent company and its subsidiaries are a single entity.
In this case, the management fee of 70,000 that S Ltd owes to P Ltd.
So, the correct journal entry on consolidation would be:
Dr. Intercompany Receivable 70,000
And
Dr. Management Fee Expense 150,000
However, none of the options provided in the question match this. Therefore, the correct answer is d. none of the above.
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