A parent company is a producer of production equipment, some of which is acquired and used by the parent’s subsidiary companies. The parent offers a discount to the subsidiaries but still earns a significant profit on the sales of equipment to a subsidiary. Is there any difference in the consolidated company’s ability to recognize the profit on these sales if, instead of selling equipment to the subsidiaries, the equipment is leased to them under capital leases? Are there any other profit opportunities for the controlling interest in leasing as opposed to selling equipment to the subsidiaries?
A parent company is a producer of production equipment, some of which is acquired and used by the parent’s subsidiary companies. The parent offers a discount to the subsidiaries but still earns a significant profit on the sales of equipment to a subsidiary. Is there any difference in the consolidated company’s ability to recognize the profit on these sales if, instead of selling equipment to the subsidiaries, the equipment is leased to them under capital leases? Are there any other profit opportunities for the controlling interest in leasing as opposed to selling equipment to the subsidiaries?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A parent company is a producer of production equipment, some of which is acquired and used by the parent’s subsidiary companies. The parent offers a discount to the subsidiaries but still earns a significant profit on the sales of equipment to a subsidiary. Is there any difference in the consolidated company’s ability to recognize the profit on these sales if, instead of selling equipment to the subsidiaries, the equipment is leased to them under capital leases? Are there any other profit opportunities for the controlling interest in leasing as opposed to selling equipment to the subsidiaries?
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