The sale of inventory items by a parent company to an affiliated company
A)enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
B)affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
C)does not result in consolidated income until the merchandise is sold to outside entities.
D)does not require a working paper adjustment if the merchandise was transferred at cost.

Question

The sale of inventory items by a parent company to an affiliated company​
A)​enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
B)​affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
C)​does not result in consolidated income until the merchandise is sold to outside entities.
D)​does not require a working paper adjustment if the merchandise was transferred at cost.

Quizplus · Accepted Answer

The sale of inventory items by a parent company to an affiliated company does not result in consolidated income until the merchandise is sold to outside entities. This is because the transactions between the parent and affiliated company are eliminated during the consolidation process, and only the transactions with outside entities are included in the consolidated financial statements.

The Sale of Inventory Items by a Parent Company to an Affiliated