On February 1, 2013 Smith Company Sold Inventory to Its

question 63

Multiple Choice

On February 1, 2013 Smith Company sold inventory to its wholly owned subsidiary Orchid Ltd. for $10,000. These goods had previously cost $7,500. All of these goods were then sold by Orchid Ltd. for $25,000 by the February 28, 2013 year-end. What adjustments are required for the preparation of the consolidated financial statements? Ignore the effects of income taxes.

• A)Decrease sales $10,000 and decrease cost of goods sold $10,000.
• B)Increase sales $10,000 and increase cost of goods sold $10,000.
• C)Decrease sales $10,000 and decrease cost of goods sold $7,500 and decrease ending inventory $2,500.
• D)None of the above

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Definitions:

Thalidomide

A medication that caused birth defects when it was given to pregnant women during the 1950s and 1960s, notably used initially as a sedative and for morning sickness.

Pregnant Women

Refers to females who are in the state of carrying a developing embryo or fetus within the uterus.

Monozygotic Twins

Twins that are genetically identical because they were formed from a single fertilized egg that split into two, sharing 100% of their DNA.

Dizygotic Twins

Also known as fraternal twins, they develop from two separate eggs fertilized by two different sperm cells, resulting in genetically distinctive siblings.