During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $14 000. At the end of the year all the inventories were still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

Question

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The subsidiary sold the inventories to the parent at a profit of $6,000, so the cost of sales for the subsidiary would be $14,000 + $6,000 = $20,000. However, since the inventories are still on hand at the end of the year, the cost of sales for the consolidated entity would only be $14,000. Therefore, the adjustment entry would include a credit to cost of sales for $14,000.

During the Current Period, a Subsidiary Entity Sold Inventories to Its