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Question
Several years ago, Jenkins Company acquired a controlling interest in Lambert Company. Lambert recently borrowed $100,000 from Jenkins. In consolidating the financial records of these two companies, how will this debt be handled?
Solution
VerifiedAnswered 2 years ago
Answered 2 years ago
When a parent company and subsidiary loan money to each other, those bonds or/and notes are eliminated during the consolidation process. When the parent company owns the subsidiary, the parent essentially has loaned money to itself. Thus, those transactions are eliminated to create an accurate picture of the business combination when the financial statements are consolidated.
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