Question

The following transactions occurred between Fauci Ltd and its wholly owned subsidiary, Gupta Ltd. All transactions occurred during the year ended 30 June 2020 unless specifically stated otherwise. The company tax rate is 30%.

Required:

Prepare the adjustment journal entries required to eliminate the intra-group transactions in the consolidation worksheet of Fauci Ltd Group at 30 June 2020.

Details of the transactions are provided below in Parts A–E. Provide the journal entries in the text box below the description of each transaction.

Since no consolidation worksheet is provided, when making adjustments to the relevant accounts, you can assume that each account that you need to adjust exists in the worksheet.

A) Fauci Ltd sold inventory to Gupta Ltd for $30,000. The inventory originally cost Fauci Ltd $19,000. By the end of the year, 40% of the inventory still remained on hand, the other 60% had been sold to an external party.

B) Fauci Ltd provided advertising services to Gupta Ltd for a fee of $12,345. Fauci Ltd invoiced Gupta Ltd on 29 June 2020. However, the invoice has not yet been paid by 30 June 2020.

C) Gupta Ltd had purchased inventory from Fauci Ltd during the previous financial year ended 30 June 2019 for $120,000. The original cost of the inventory had been $95,000. The inventory still remained on hand by 30 June 2020.  

D) On 1 May 2020, Fauci Ltd borrowed a loan of $100,000 from Gupta Ltd. The annual interest charged on the loan is 8%. Accrued interest is paid twice a year on 30 June and 31 December.

Answer 1

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