Question

On January 1, 20X8, Blake Company acquired all of Frost Corporation's voting shares for $280,000 cash. On December 31, 20X9, Frost owed Blake $5,000 for services provided during the year. When consolidated financial statements are prepared for 20X9, which entry is needed to eliminate intercompany receivables and payables in the consolidation worksheet?
A) Accounts Payable 5,000
Accounts Receivable 5,000
B) Accounts Receivable 5,000
Accounts Payable 5,000
C) Retained Earnings 5,000

Answer 1

Answer:

A) Accounts Payable 5,000 ; Accounts Receivable 5,000

Explanation:

The amount owed as accounts payable (i.e liabilities) would be reduced with the amount of account receivables(assets) i.e. the assets would decrease giving a credit and liabilities would decrease giving a debit.