A Subsidiary Entity Sold Inventory to a Parent Entity for $30

question 8

Multiple Choice

A subsidiary entity sold inventory to a parent entity for $30 000. The inventory had previously cost the subsidiary entity $24 000. By reporting date the parent entity had sold 75% of the inventory to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

• A)\(\begin{array} { l l l r }
• \text { Sales revenue } & \mathrm { Dr } & 30000 & \\
• \quad \text { Cost of sales } & \mathrm { Cr } & 24000 \\
• \quad \text { Inventory } & \mathrm { Cr } & 6000 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 1800 & \\
• \quad \text { Income tax expense } & \mathrm { Cr } &1800
• \end{array}\)
• B)\(\begin{array} { l l c r }
• \text { Sales revenue } & \mathrm { Dr } & 30000 & \\
• \quad \text { Cost of sales } & \mathrm { Cr } & 28500 \\
• \text { Inventory } & \mathrm { Cr } &1500 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 450 & \\
• \text { Income tax expense } & \mathrm { Cr } & 450
• \end{array}\)
• C)\(\begin{array} { l l c r }
• \text { Sales revenue } & \mathrm { Dr } & 22500 & \\
• \quad \text { Cost of sales } & \mathrm { Cr } & 18000 \\
• \text { Inventory } & \mathrm { Cr } & 4500 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 1350 & \\
• \text { Income tax expense } & \mathrm { Cr } & 1350
• \end{array}\)
• D) \(\begin{array} { l l c c }
• \text { Sales revenue } & \mathrm { Dr } & 7500 & \\
• \text { Cost of sales } & \mathrm { Cr } & 6000 \\
• \text { Inventory } & \mathrm { Cr } & 1500 \\
• \text { Deferred tax asset } & \mathrm { Dr } & 450 & \\
• \text { Income tax expense } & \mathrm { Cr } & 450
• \end{array}\)

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Definitions:

Inefficiency

The lack of ability to achieve desired results or outputs with minimum waste of time, effort, or resources, often leading to productivity and economic losses.

Authoritarian Leadership

Demands strict compliance from subordinates. Authoritarian leaders are most effective in a crisis, such as a war or the emergency room of a hospital.

Democratic Leadership

Offers more guidance than the laissez-faire variety but less control than the authoritarian type. Democratic leaders try to include all group members in the decision-making process, taking the best ideas from the group and molding them into a strategy with which all can identify. Except during crisis situations, democratic leadership is usually the most effective leadership style.

Hawthorne Research

Studies conducted primarily at the Western Electric Company's Hawthorne Works in Chicago, which focused on how varying working conditions affected employee productivity, emphasizing the social and psychological factors.