(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000.These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for$8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriateconsolidation adjustment entries are as follows: Sales Dr $15,000 Cost of Sales Cr $13,000 Inventory Cr $2,000 Deferred Tax Asset Dr $300 Income Tax Expense Cr $300 Required:(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basisthe correct adjustment entry.(ii)Determine the consolidation worksheet entries in the following year, assuming the inventoryhas been –sold, and explain the adjustments on a line-by-line basis.
(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000.
These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for
$8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate
consolidation
Sales Dr $15,000
Cost of Sales Cr $13,000
Inventory Cr $2,000
Income Tax Expense Cr $300
Required:
(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis
the correct adjustment entry.
(ii)Determine the consolidation worksheet entries in the following year, assuming the inventory
has been –sold, and explain the adjustments on a line-by-line basis.
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