Global Corporation acquired 85 percent of Local Company's voting shares of stock in 2007.During 2008,Global purchased 50,000 picture tubes for $15 each and sold 28,000 of them to Local for $20 each.Local sold all of the units to unrelated entities prior to December 31,2008,for $30 each.Both companies use perpetual inventory systems. Which workpaper eliminating entry is needed in preparing consolidated financial statements for 2008 to remove all effects of the intercompany sale?

Question

Quizplus · Accepted Answer

The workpaper eliminating entry needed in preparing consolidated financial statements for 2008 to remove all effects of the intercompany sale is to eliminate both the intercompany revenue and intercompany cost of sales. Option A correctly shows the elimination of $560,000 intercompany revenue and $420,000 intercompany cost of sales. Option B, C, and D do not correctly eliminate both intercompany revenue and intercompany cost of sales, or incorrectly eliminate both.

Global Corporation Acquired 85 Percent of Local Company's Voting Shares