During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary.The subsidiary also makes sales of inventory at a profit to its parent during the same year.Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another.Consolidated revenues for the year should exclude:

Question

Quizplus · Accepted Answer

Consolidated financial statements are prepared to represent a single economic entity, and transactions among affiliates should be eliminated to avoid double counting. Therefore, the total revenues from intercompany sales should be excluded from the consolidated revenues for the year, as they represent transactions between entities that are part of the same group. Option A is not correct because consolidating 80% of intercompany sales would still leave 20% of inventory on hand, which would be subject to elimination in the consolidation process. Options C and D are not correct because both the parent and subsidiary's intercompany sales should be excluded to avoid double counting.

During the Year a Parent Makes Sales of Inventory at a Profit