Mallard Ltd B) C) D)No Adjustment Is Required as the Profits Have Been Realized

question 14

Multiple Choice

Mallard Ltd. acquired 75% of the outstanding common shares of Teal Ltd. at December 31, 20X1, for $900,000. Mallard has recorded its investment using the cost method.
- At the end of 20X7, Mallard still had $40,000 of goods purchased from Teal in its inventory and Teal had $50,000 of goods purchased from Mallard in its inventory. Both companies had gross margins of 50% in their sales of goods to each other and both companies sold these goods in 20X8. What journal entry should be made for Mallard's 20X8 consolidated financial statements with respect to the goods purchased from Teal that were still in Mallard's opening inventory?

• A) \[\begin{array} { | c | c | }
• \hline \text { DR Opening retained earnings } & 15,000 \\
• \hline \text { CR Opening NCI } & 5,000 \\
• \hline \text { CR Cost of sales } & 20,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { DR Opening retained earnings } & 30,000 \\
• \hline \text { CR Opening NCI } & 10,000 \\
• \hline \text { CR Cost of sales } & 40,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | c | }
• \hline \text { DR Opening retained earnings } & 40,000 \\
• \hline \text { CR Cost of sales } & 40,000 \\
• \hline
• \end{array}\]
• D)No adjustment is required as the profits have been realized.

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