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 inter company transfers must be adjusted. With this in mind, please answer the following questions:
- Why are adjustments necessary for inter company transfers?
- What are some ways the financials would be misstated if these inter company transfers were not adjusted?
- Provide an example on how a firm could manipulate the firm’s financial position and how these inter company entries fix this problem.
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