P Ltd Sells Inventory to Its Subsidiary S Ltd on the Following

question 22

Multiple Choice

P Ltd sells inventory to its subsidiary S Ltd on the following basis: cost to P $60 000,sale price to S $80 000.All inventory is held by S at the end of the financial year (assume a tax rate of 30%) .The periodic method is used to account for inventory.Therefore,which of the following consolidation entries are required?

• A)\(\begin{array} { l l }
• \text { Dr. Sales } & \$ 80,000 \\
• \text { Cr. Cost of Sales } & \$ 80,000
• \end{array}\)
• B)\(\begin{array} { l c }
• \text { Dr. Sales } & \$ 80,000 \\
• \text { Cr. Cost of Sales } & \$ 80,000 \\
• \text { Dr. Closing Inventory } & \$ 20,000 \\
• \text { Cr. Inventory } & \$ 20,000
• \end{array}\)
• C)As for \(B\) plus
• Dr. Deferred Tax Asset \(\$ 6000\)
• Cr. Income Tax expense \(\$ 6000\)
• D) None of the above

---

Definitions:

Status Quo

The existing state or condition of affairs, often implying a resistance to change or innovation.

Promote Stability

The process or actions taken to maintain a steady and unchanging condition in an organization or system.

Smooth Running

The efficient and effective operation of a process, organization, or system, with minimal disturbances or conflicts.

Preconceived Notions

Ideas or opinions formed before having the evidence for their truth or usefulness, often based on stereotypes or initial impressions.