In May 2020, a parent sold inventories to a subsidiary entity for $60 000. The inventories had previously cost the parent entity $48 000. The entire inventory is still held by the subsidiary at reporting date, 30 June 2020. Ignoring tax effects, which of the following is the adjustment entry in the consolidation worksheet at reporting date?   a. Cash Dr 48 000     Sales revenue Cr   48 000   Cost of sales Dr 48 000     Inventories Cr   48 000           b. Sales revenue Dr 48 000     Cash Cr   48 000   Inventories Dr 48 000     Cost of sales Cr   48 000   c.   Cost of sales   Dr   60 000     Sales revenue Cr   12 000   Inventories Cr   48 000           d. Sales revenue Dr 60 000     Cost of sales Cr   48 000   Inventories Cr   12 000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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  1. In May 2020, a parent sold inventories to a subsidiary entity for $60 000. The inventories had previously cost the parent entity $48 000. The entire inventory is still held by the subsidiary at reporting date, 30 June 2020. Ignoring tax effects, which of the following is the adjustment entry in the consolidation worksheet at reporting date?

 

a.

Cash

Dr

48 000

 

 

Sales revenue

Cr

 

48 000

 

Cost of sales

Dr

48 000

 

 

Inventories

Cr

 

48 000

 

 

 

 

 

b.

Sales revenue

Dr

48 000

 

 

Cash

Cr

 

48 000

 

Inventories

Dr

48 000

 

 

Cost of sales

Cr

 

48 000

 

c.

 

Cost of sales

 

Dr

 

60 000

 

 

Sales revenue

Cr

 

12 000

 

Inventories

Cr

 

48 000

 

 

 

 

 

d.

Sales revenue

Dr

60 000

 

 

Cost of sales

Cr

 

48 000

 

Inventories

Cr

 

12 000

 

 

 

 

 

 

 

 

 

 

Answer (write your correct choice):       

 

Expert Solution
Step 1

 

CONSOLIDATED JOURNAL ENTRY 

 

Under the consolidation method, the accounting statement merges together financial entries of the parent company and its subsidiaries with the necessary elimination of entries so as to avoid overlapping of data.

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