On January 1, 20X3, Dwayne Ltd $\begin{array} { l l } { \text { Debit } } &&&&&&& { \text { Credit } } \\\end{array}$

question 3

Short Answer

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's inventories was $20,000 at December 31, 20X5, and $25,000 at December 31, 20X6.
-Ignoring income taxes, what accounts should Dwayne debit and credit by $20,000 in preparing its consolidated financial statements for the year ended December 31, 20X6, to reflect the unrealized profit in Carlos's beginning inventory? $\begin{array} { l l } { \text { Debit } } &&&&&&& { \text { Credit } } \\\end{array}$
A) $\begin{array} { l l } \text {Cost of sales } &&& \text { Inventory } \\\end{array}$
B) $\begin{array} { l l }\text { Inventcry } &&&& \text { Cost of Sales } \\\end{array}$
C) $\begin{array} { l l } \text {Retained earnings } & \text { Cost of sales } \\\end{array}$
D) $\begin{array} { l l } \text {Cost of sales } &&& \text { Tetained earnings }\end{array}$

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Definitions:

Marginal Decision Rule

The principle of making decisions based on the additional cost vs. additional benefit of the next unit.

MC < MR

This indicates a scenario in economic theory where the marginal cost of producing an additional unit is less than the marginal revenue gained from selling that unit.

Monopolistic Competition

A market structure characterized by many firms selling similar but not identical products, allowing for some degree of market power and product differentiation.

Monopolistic Competition

An industry setup where numerous companies offer products that are alike but not exactly the same, providing a certain level of influence over the market.