A subsidiary sold inventories to its parent in year 1 at a before-tax profit of $15 000. At balance sheet date, the parent had not sold the inventories to an external party. The company tax rate is 30%. The year 1 consolidation worksheet will contain which of the following adjustment entries for inventories?
A) Dr Inventories $15 000
B) Dr Inventories $10 500
C) Cr Inventories $15 000
D) Cr Inventories $10 500

Question

Quizplus · Accepted Answer

The consolidation worksheet must eliminate the unrealized profit from the inventory. Since the profit is $15,000, the entry is to credit inventories by $15,000 to remove the profit from the consolidated financial statements.

A Subsidiary Sold Inventories to Its Parent in Year 1