Lilo Ltd Sells Inventory Items to Its Subsidiary Stitch Ltd

question 22

Multiple Choice

Lilo Ltd sells inventory items to its subsidiary Stitch Ltd.If during the financial year 2013,the unrealised profits in ending inventory in Stitch Ltd exceeds that of its unrealised profits in beginning inventory,which of the following statements is correct with respect to Lilo Ltd's consolidated financial statements after considering these transactions only?

• A) Consolidated profit will decrease.
• B) Consolidated deferred tax liability will increase.
• C) Consolidated ending inventory will decrease.
• D) Consolidated sales will be unaffected.

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Definitions:

Hostages

Individuals held captive by others as security for the fulfillment of specific conditions or demands.

Trading Partner

An entity or country that engages in commerce or trade with another, often under agreed terms or through treaties.

Held Up

Delayed or stopped by something or someone, causing a pause in progress or movement.

Average Variable Costs

The total variable costs (costs that change with output level) divided by the quantity of output produced.