Parent co. is a foreign corporation and 100% owns a US subsidiary.
Parent Co provides inventory to US Sub. US Sub sells to retailers & final consumers. The cash flow is okay since Parent Co never requests any payment of inventory that shipped to US Sub. So there is a huge AP balance (about 900K) on US Sub balance sheet. The accumulated earning is about 1M.
Should the US Sub treat the 900K AP as cancellation of debt since the Parent Co does not and will not ask for the payments for these 900K AP?
Or should we reclassify the 900K AP as paid-in capital?
Are there any transfer pricing issue? Any other potential issue do you see?
I don’t know any special agreement between Parent Co and US Sub. I need help to compile my financial statements as fairly as possible.
Thank you for your help!