During the Year Ended 30 June 2017, a Subsidiary Sold

question 43

Multiple Choice

During the year ended 30 June 2017, a subsidiary sold inventories to its parent at a before-tax profit of $20 000. The inventories originally cost the subsidiary $87 000. At 30 June 2017 all the inventory was still on hand and it was sold to an external party in July 2017. Ignoring tax effects, the consolidation adjustment entry to eliminate this transaction during the year ended 30 June 2018 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

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Definitions:

NPV

Net Present Value, a calculation that compares the present value of a project or investment's cash inflows with its cash outflows.

IRR

Internal Rate of Return; a metric used in capital budgeting to estimate the profitability of potential investments.

Conventional Cash Flow

A cash flow pattern characterized by an initial investment outlay followed by a series of positive cash inflows.

Initial Cost

The original outlay or expense associated with acquiring an asset or launching a project, not including operational or maintenance costs.