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

question 10

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 $25,000 in preparing its consolidated financial statements for the year ended December 31, 20X6, to reflect the unrealized profit in Carlos's ending 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:

Cost of Goods Sold

An accounting term that refers to the direct expenses related to the production of goods sold by a business, including materials and labor.

Beginning Inventory

The value of all inventory held by a company at the start of an accounting period.

Net Income

The conclusive financial gain of a company post all deductions for expenses and taxes from the revenue.

Understated

Described or estimated below the actual size, quantity, or importance.