A Subsidiary Sold Inventory to a Parent Entity for €10

question 13

Multiple Choice

A subsidiary sold inventory to a parent entity for €10 000. The inventory originally cost the subsidiary €6000. At the end of the reporting period the parent had sold 50% of the inventory to an external party. The company tax rate is 30%. The deferred tax item that is recognised on consolidation is:

• A) CR Deferred tax liability €1 200
• B) CR Deferred tax liability €600
• C) DR Deferred tax asset €1 200
• D) DR Deferred tax asset €600.

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Definitions:

Corporation

A corporation is a legal entity that is separate and distinct from its owners, offering limited liability, easy transferability of shares, and potential for raising capital.

Federal Statutes

Laws enacted by the federal government of a country.

State Statutes

Laws established by a state government that prescribe or prohibit certain actions, governing the behavior of individuals and organizations within that state.

Issuing Stock

The process by which a company sells new shares to investors to raise capital, often through a public offering.