During the year ended 30 June 2014,a subsidiary sold inventory to its parent at a before-tax profit of $20 000.The inventory originally cost the subsidiary $87 000.At 30 June 2014 all the inventory was still on hand and it was sold to an external party in July 2014.Ignoring tax effects,the consolidation adjustment entry to eliminate this transaction during the year ended 30 June 2015 would include which of the following line items?
A)Dr Cost of sales $20 000
B)Cr Cost of sales $20 000
C)Dr Cost of sales $87 000
D)Cr Cost of sales $87 000

Question

Quizplus · Accepted Answer

The consolidation adjustment entry to eliminate the intercompany sale of inventory would include a credit to cost of sales for the amount of the before-tax profit recognized by the subsidiary on the sale. This is because the profit has already been recognized in the consolidated financial statements when the subsidiary sold the inventory to the parent.

During the Year Ended 30 June 2014,a Subsidiary Sold Inventory