Question

In May 20X7, a parent entity sold inventory to a subsidiary entity for $30 000. The inventory had previously cost the parent entity $24 000. The entire inventory is still held by the subsidiary at reporting date, 30 June 20X7. Ignoring tax effects, the adjustment entry in the consolidation worksheet at reporting date is:

Select one:

a.

DR		Sales revenue		30 000
	CR		Cost of sales		24000
	CR		Inventory		6 000

b.

DR		Sales revenue		30 000
	CR		Cost of sales		6 000
	CR		Inventory		24 000

c.

DR		Sales revenue		24 000
	CR		Cash		24 000
DR		Inventory		24 000
	CR		Cost of sales		24 000

d.

DR		Cash		24 000
	CR		Sales revenue		24 000
DR		Cost of sales		24 000
	CR		Inventory		24 000

Answer 1

Adjustment entry in the consolidated worksheets
Date	Particulars	Debit	Credit
2007
June	30	Sales Account	30,000.00
		To, Cost of Sales		24,000.00
		To, Inventory		6,000.00
In the given question Parent company sales goods to its Subsidary company costing 24000$ at a sales value of 30000$. Such transaction is intercompany Sales. Whereas during reporting date such goods are still lying in the stock of the Subsidary company. Therefore when both the companies prepare consolidated finacials statements there arrise an unrealize profit of 6000. such profit present in the inventory of consolidated records are to be credited to reduce its balance to that extent.
Sales and cost related to such sales recorded by Parent company and subsidairy company respectively have to be adjusted by debiting sales and crediting Cost of sales/Purchases in consolidated records.
Correct Option : (a)