During the Year Ended June 30 20X7,a Parent Entity Rimfire

question 9

Multiple Choice

During the year ended June 30 20X7,a parent entity Rimfire Ltd sold merchandise to its 30% owned associate Neville Ltd at a mark-up of $100,000.At June 30 20X7,Neville Ltd still held one-half of this merchandise in inventory.Because of marketing problems,Neville Ltd had written down the merchandise by $20,000.The income tax rate was 30%.In the consolidated financial statements prepared for the year ended June 30 20X7 of the group controlled by Rimfire Ltd,the effect of the unsold merchandise at June 30 20X7 would be:

• A) Rimfire Ltd would recognise an unrealised profit of $21,000 after tax and report merchandise inventory at an amount $30,000 less than that at which the merchandise is carried in the balance sheet of Neville Ltd.
• B) Rimfire Ltd would recognise an unrealised profit of $6,300 after tax and report merchandise inventory at an amount $21,000 less than that at which the merchandise is carried in the balance sheet of Neville Ltd.
• C) Rimfire Ltd would recognise an unrealised profit of $6,300 after tax and report the inventory of merchandise at an amount $20,000 less than the amount at which the merchandise is carried in the statement of financial position of Neville Ltd.
• D) None of the above.

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Definitions:

Memory Distortion

The alteration of a memory or the introduction of inaccuracies into a memory over time, which can significantly impact how the memory is recalled.

Source Amnesia

A memory disorder in which someone can remember certain information, but not how, when, or where they learned that information.

Classically Conditioned

A conditioning process that involves pairing two stimuli repeatedly; the response initially produced by the second stimulus eventually comes to be produced by the first stimulus exclusively.

Automatic Processing

Cognitive operations that occur without conscious awareness or effort, often as a result of learning and practice.