During the Current Period, a Subsidiary Entity Sold Inventories to a Parent

question 5

Multiple Choice

During the current period, a subsidiary entity sold inventories to a parent entity for $40 000. The inventories had previously cost the subsidiary entity $36 000. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

• A) \(\begin{array}{cccc}
• \text { Sales revenue } & \mathrm{Dr} & 40,000 & \\
• \text { Cost of sales } & \mathrm{Cr} & &36,000 \\
• \text { Inventories } & \mathrm{Cr} & &4,000 \\
• \text { Deferred tax asset } & \mathrm{Dr} & 1,200 & \\
• \text { Income tax expense } & \mathrm{Cr} & &1,200
• \end{array}\)
• B) \(\begin{array}{ccrr}
• \text { Sales revenue } & \mathrm{Dr} & 40000 & \\
• \text { Cost of sales } & \mathrm{Cr} & & 39000 \\
• \text { Inventories } & \mathrm{Cr} & &1000 \\
• \text { Deferred tax asset } & \mathrm{Dr} & 300 & \\
• \text { Income tax expense } & \mathrm{Cr} & & 300
• \end{array}\)
• C) \[\begin{array} { l l r r }
• \text { Sales reverue } & \mathrm { Dr } & 30000 \\
• \text { Cost of sales } & \mathrm { Cr } & & 27000 \\
• \text { Irventories } & \mathrm { Cr } & & 3000 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 900 & \\
• \text { Income tax expense } & \mathrm { Cr } & & 900
• \end{array}\]
• D) \[\begin{array} { c l c c }
• \text { Sales reverue } & \mathrm { Dr } & 10000 \\
• \text { Cost of sales } & \mathrm { Cr } & & 9000 \\
• \text { Irventories } & \mathrm { Cr } & & 1000 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 300 & \\
• \text { Income tax expense } & \mathrm { Cr } & & 300
• \end{array}\]

---

Definitions:

Per Capita Income

The mean earnings received by an individual in a specific region or nation.

Cable Television

A system of delivering television programming via coaxial or fiber-optic cables, offering a wide range of channels and services.

Natural Monopoly

A market condition where the most efficient number of firms in the industry is one, due to the high infrastructure or fixed costs associated with distribution networks.

Willingness to Pay

The maximum amount an individual is prepared to spend on a good or service, reflecting the value they place on it.