Alice Plc Sold Inventory Items to Its Subsidiary Mad Hatter

question 8

Multiple Choice

Alice Plc sold inventory items to its subsidiary Mad Hatter Plc and had the following intercompany transactions:
Cost of inventory €100 000 sold for €125 000 for the year ended 30 June 2012.Half of the inventory items were sold by Mad Hatter Plc to external parties before the financial year end 30 June 2012.
Cost of inventory €75 000 sold for €100 000 for the year ended 30 June 2013.Half of the inventory items were sold by Mad Hatter Plc to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013?

• A)Consolidated sales will decrease by €125 000.
• B)Consolidated sales will increase by €25 000.
• C)Consolidated profit will decrease by €12 500.
• D)There will be no change in the consolidated profit.

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Definitions:

Accounts Receivable

The money owed to a company by its customers for products or services that have been delivered but not yet paid for.

Work in Process

Goods in various stages of completion throughout the production process, not yet ready for sale.

Finished Goods

Items that are finished with production and available for purchase by consumers.

Work in Process

Work in process (WIP) refers to partially finished goods that are still undergoing manufacturing processes but are not yet complete products.