Hill Company entered into the following inventory transactions with its investees during 2015:
• Sold inventory to Grant Inc.for $150,000.The inventory originally cost Hill $120,000.Grant sold 75% of the inventory during 2015.
• Hill owns 15% of the voting stock of Grant and does not use the equity method to account for the Grant investment.
• Sold inventory to Thornton Inc.for $400,000.The inventory originally cost Hill $320,000.Thornton sold 60% of the inventory during 2015.Hill owns 100% of the voting stock of Thornton.
Which of the following adjustments is not correct with respect to preparing Hill's 2015 consolidated financial statements?

Question

Quizplus · Accepted Answer

Consolidated sales should be reduced by the amount of intraentity sales ($400,000).Purchases should be reduced by the amount of intraentity purchases ($400,000);ending inventory should be reduced by the amount of the deferred profit ($32,000 = $80,000 × 40%).As a result of these two adjustments,cost of goods sold decreases $368,000.Inventory should be reduced $32,000 ($80,000 × 40%).

Hill Company Entered into the Following Inventory Transactions with Its