A subsidiary sold a quantity of inventories to its parent entity at a before-tax profit of $12 000. The original cost of the inventories to the subsidiary was $41 000. At the end of the year all of the inventories were still on hand. The consolidation adjustment entry to eliminate this transaction will include which of the following line items?
A) Cr Inventories $12 000
B) Cr Inventories $53 000
C) Cr Inventories $41 000
D) Cr Inventories $29 000

Question

Quizplus · Accepted Answer

The correct adjustment to eliminate the intercompany profit is to credit Inventories by the amount of the profit, which is $12,000. This removes the profit from the consolidated financial statements, ensuring they reflect the transactions at cost.

A Subsidiary Sold a Quantity of Inventories to Its Parent