On January 1,20X3,Dwayne Ltd

question 28

Multiple Choice

On January 1,20X3,Dwayne Ltd.formed Carlos Co. ,a 100% owned subsidiary.During 20X6,Dwayne sold Carlos $100,000 in goods.The unrealized profit in Carlos' inventories was $20,000 at December 31,20X5 and $25,000 at December 31,20X6.Ignoring income taxes,what adjustment should be made to the consolidated financial statements for the year ended December 31,20X6 to reflect the unrealized profit in Carlos' beginning inventory?

• A)Inventory at December 31,20X6 should be decreased by $20,000.
• B)Cost of goods sold for 20X6 will be decreased by $20,000.
• C)Retained earnings at the end of 20X6 will be increased by $20,000.
• D)Retained earnings at the end of 20X6 will be decreased by $20,000.

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Definitions:

Complementary Resource

A good or service that enhances the value or performance of another primary product or service.

Profit-maximizing Firm

A company that adjusts its production and sales strategies to achieve the highest possible profit, considering its costs and market demand.

Substitution Effect

This effect describes the change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute more expensive items with cheaper ones.

Output Effect

The impact on total output or production resulting from changes in the price level or other economic factors.