During the Year Ended 30 June 2022, a Subsidiary Entity

question 32

Multiple Choice

During the year ended 30 June 2022, a subsidiary entity sold inventories to a parent entity for $50 000. The inventories had previously cost the subsidiary entity $45 000. By 30 June 2022 the parent entity had sold all the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2023 is:

• A) \(\begin{array}{llr}\text { Sales revenue }&\mathrm{Dr}&50,000\\
• \text { Cost of sales } & \mathrm{Cr} && 45,000 \\
• \text { Inventories } & \mathrm{Cr} && 5,000\\
• \text { Deferred tax asset }&\mathrm{Dr}&1,500\\
• \text { Income tax expense }& \mathrm{Cr}&&1,500\\
• \end{array}\)
• B) \(\begin{array}{lll}
• \text { Retained earnings } & \text { Dr } & 3500 \\
• \text { Income tax expense } & \mathrm{Dr} & 1500 \\
• \text { Cost of sales } & \mathrm{Cr} &5000
• \end{array}\)
• C) \[\begin{array} { c l c c }
• \text { Retained earriirigs } & \mathrm { Dr } & 5000 \\
• \text { Irventories } & \mathrm { Cr } & & 5000 \\
• \text { Deferted tax asset } & \mathrm { Dr } & 1500 & \\
• \text { Retained earriirgs } & \mathrm { Cr } & & 1500
• \end{array}\]
• D) No entry is required

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Definitions:

Ethical Resistance

The act of opposing actions or decisions that violate moral principles or codes of conduct.

Lowball Technique

Getting someone to commit to an attractive proposition before its hidden costs are revealed.

Hidden Costs

Expenses not readily apparent at the time of purchase or decision-making, which can make a product or service more expensive than initially thought.

Cognitive Dissonance

A psychological state of tension that occurs when an individual holds two conflicting thoughts, beliefs, attitudes, or values at the same time.