AC450 Unit5 Discussion - Topic#1 One Plus One Equals One In...

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Topic #1: One Plus One Equals One 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, please answer the following questions: Why are adjustments necessary for intercompany transfers? From a consolidated perspective neither a sale nor a purchase has occurred. An intra-entity transfer is merely the internal movement of inventory, an event that creates no net change in the financial position of the business combination taken as a whole. Thus, in producing consolidated financial statements, the recorded effects of these transfers are eliminated so that consolidated statements reflect only transactions with outside parties (Hoyle 204). What are some ways the financials would be misstated if these intercompany transfers were not adjusted?
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