hi team

May I ask -

1. Why account receivable / Cash need to be deducted in S & P book?
2. Why inventory need to be increased 7,000 in S's book?

-S is a wholly owned subsidiary of P. -On 1 April 20X1, S sold inventory costing $7,000 to its P for $10,000. -On 5 Jan 20X2, P sold the inventory to external party for $15,000. -Assumed tax rate of 20% . Year-end is 31 Dec 20X1. Journal entries for the legal entities as at YE 31 Dec 20X1 In S's book Dr Account receivable/ Cash 10,000 Cr Sales 10,000 S's NI (overstated) -> 20X1 YE RE -> Dr Cost of sales/COGS 7,000 20X2 Opening RE Cr Inventory 7,000 In P's book Dr Inventory 10,000 Cr Account payable/ Cash 10,000