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) \[\begin{array} { c l c c }
• \text { Sales reverue } & \mathrm { Dr } & 10000 \\
• \text { Cost of sales } & \mathrm { Cr } & & 9000 \\
• \text { Irventories } & \mathrm { Cr } & & 1000 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 300 & \\
• \text { Income tax expense } & \mathrm { Cr } & & 300
• \end{array}\]

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Definitions:

List Price

The manufacturer’s or retailer’s suggested retail price for a product, often before any discounts are applied.

Dealer Cost

The actual cost to the dealer or retailer to acquire a product before any mark-up for profit.

Real Estate Fees

Charges or commissions paid to agents or companies for services related to buying, selling, or leasing properties.

Proceeds

The total amount of money received from a transaction or series of transactions.