A Company regularly purchases janitorial and maintenance services from a wholly owned subsidiary that provides maintenance services. The subsidiary bills the parent company each month at its regular rates for the services provided. Some of the services include: cleaning, grounds keeping, and small repairs.

The cost to the subsidiary for providing the services to the parent consists mostly of salaries and associated labor costs that total about 60 percent of the amount billed. The parent issues consolidated financial statements annually.

Required for Initial Discussion Post:

When the Parent prepares consolidated financial statements, what account balances of each company related to the inter-company sale of services must be adjusted or eliminated in the consolidation worksheet and what impact do these adjustments or eliminations have on consolidated net income?

In the case of inter-company sales of services at a profit, at what point in time are the inter-company profits considered to be realized? Explain.