How Do Intra-Entity Sales of Inventory Affect the Preparation of a Consolidated

question 108

Multiple Choice

How do intra-entity sales of inventory affect the preparation of a consolidated statement of cash flows?

• A) They must be added in calculating cash flows from investing activities.
• B) They must be deducted in calculating cash flows from investing activities.
• C) They must be added in calculating cash flows from operating activities.
• D) Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required.
• E) They must be deducted in calculating cash flows from operating activities.

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Definitions:

Identical Products

Goods that are exactly the same in every feature, often used in industries where standardization is vital.

Beginning Inventory

The value of all the inventory held by a business at the start of an accounting period.

Equivalent Units

A concept used in cost accounting to standardize heterogeneous units of production, making them quantitatively comparable.

Equivalent Units

Equivalent units are used in cost accounting to represent the amount of work done during a period, expressed in terms of fully completed units.