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The company PQR has an ownership structure as shown below. H_1 has an intercompany transaction with P_2. For which entity or entities does consolidation need to be run in order for the transaction to be eliminated?
Correct Answer: C
Explanation For H_1 to have an intercompany transaction with P_2, consolidation needs to be run for Hickory and Paducah entities in order for the transaction to be eliminated. Intercompany transactions are transactions between entities that belong to the same group or consolidation hierarchy. Intercompany transactions need to be eliminated during consolidation to avoid double-counting of revenues, expenses, assets, liabilities, etc. Intercompany transactions are eliminated at the common parent entity level of the intercompany entities. For example, if H_1 has an intercompany transaction with P_2, the transaction will be eliminated at Hickory level (the parent of H_1) and Paducah level (the parent of P_2). The other options are not correct. PQR is not the common parent entity of H_1 and P_2, so consolidation does not need to be run for PQR to eliminate the transaction. H_1 and P_2 are not parent entities, so consolidation does not need to be run for them either. Intercompany transactions can be eliminated even if intercompany entities do not have the same parent, as long as they share a common ancestor entity. References: Oracle Financial Consolidation and Close 2023 Implementation Essentials Study Guide, page 19; [Oracle Financial Consolidation and Close Cloud Service Administrator's Guide], page 2-11.
