Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should not include:
A) a debit to sales.
B) a credit to cost of sales.
C) a credit to inventories.
D) a credit to machinery.

Question

Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should ­not include:
A) a debit to sales.
B) a credit to cost of sales.
C) a credit to inventories.
D) a credit to machinery.

Quizplus · Accepted Answer

The consolidation worksheet should not include a credit to inventories because the inventory has been sold and is now classified as machinery in Jasmine Ltd's production process.

Aladdin Ltd Sells Inventory for a Profit to Its Subsidiary