Sisters Inc. beauty salon is a 100% subsidiary of Benefit Beauty Supply Inc., a beauty supply company. As a result of this relationship, there were several transactions between the two entities during the last year. Sisters rented retail space for its salon from Benefit Beauty during the past year at a rate that is determined to be fair market value. Sisters also purchased beauty supplies from Benefit Beauty. Lastly, Sisters has a non-interest-bearing loan owing to Benefit Beauty, and there are no repayment terms for this loan.

Sisters is looking to expand next year and is seeking a new bank loan. As a result, it has asked Sol Newton, CPA, to audit its financial statements.

Which of the following apply to this scenario?