When preparing consolidated financial statements, what is the main reason we eliminate all intercompany transactions between and among a parent company and its subsidiaries?

1. Intercompany transactions almost always result in gains, and the conservatism principle says that gains should be deferred, while losses should be recognized immediately
2. The Sarbanes-Oxley Act of 2002 (i.e., U.S. Public Law 107-204) states that affiliated companies should not engage in transactions with each other
3. Management theory suggests that it helps eliminate problems with adverse selection
4. Commonly controlled affiliates represent a single economic entity, and an entity cannot engage in economically substantive transactions with itself