A parent sold some inventories to its subsidiary for $55 000. The goods had originally cost the parent $40 000. At the end of the year all of the inventories were still on hand. The consolidation adjustment entry to eliminate this transaction will include the following line items?
A) Cr Cost of sales $15 000
B) Cr Cost of sales $40 000
C) Cr Cost of sales $95 000
D) Cr Cost of sales $55 000

Question

Quizplus · Accepted Answer

The correct adjustment is to eliminate the intra-group sale and recognize the inventory at its original cost to the parent, which was $40,000. This requires crediting Cost of Sales to reverse the profit element included in the subsidiary's cost of sales.

A Parent Sold Some Inventories to Its Subsidiary for $55