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:

Accounts Payable

The amount of money a company owes to its suppliers or creditors for goods or services bought on credit.

CCA Class

A categorization in the Canadian tax system that groups assets with similar properties for depreciation purposes.

Operating Income

This is the profit realized from a business's core operations, indicating the financial health of the business by excluding the effects of financing and investments.

Fixed Assets

Long-term tangible pieces of property or equipment a company owns and uses in its operations for generating income.