King, Inc., owns 70% of Simmon Co.’s outstanding common stock. King’s liabilities total $450,000, and Simmon’s liabilities total $200,000. Included in Simmon’s financial statements is a $100,000 note payable to King. What amount of total liabilities should be reported in the consolidated financial statements?

$550,000

Explanation:

In the consolidated financial statements, intercompany related transactions are deducted from the books of either of the parties involved before it is reported.

For instance, where the liabilities of one party (subsidiary/owner) is due to another (owner/subsidiary), that amount will be deducted from the sum of the liabilities of the two companies.

Total liabilities to be reported

= $450,000 + $200,000 - $100,000

= $550,000

c, theres a double tax on the business earnings