Jordan Ltd

question 4

Multiple Choice

Jordan Ltd. acquired 80% of Cool Co. in 20X1. During 20X1, Cool sold inventory to Jordan. At the end of 20X2, the goods were still in Jordan's inventory. Jordan correctly eliminated the $10,000 of unrealized profits on its 20X2 consolidated financial statements and the goods were finally sold in 20X3. In preparing its 20X3 consolidated financial statements, what adjustments should be made with respect to the previously unrealized profit?

• A)Increase cost of sales by $10,000, increase retained earnings by $8,000, and increase the non-controlling interest by $2,000.
• B)Decrease cost of sales by $10,000, decrease retained earnings by $8,000, and decrease the non-controlling interest by $2,000.
• C)Increase both cost of sales and retained earnings by $10,000.
• D)No entry is required.

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Definitions:

Utilization Rate

Typically refers to the ratio of currently used resources to the total available resources, often used in the context of credit utilization or operational capacity.

Net Income

The total earnings or profit of a person or company after deducting all expenses and taxes.

Variable Costs

Expenses that fluctuate based on the amount of products or services a company generates.

Net Income

Net Income is the total profit of a company after all expenses and taxes have been deducted from revenue.