Jessica Ltd sold inventory during the current period to its wholly-owned subsidiary, Amelie Ltd, for $15,000. These
Question:
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 $8,000. The tax rate is 30%.
The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation 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:
A. Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entries.
B. Determine the consolidation worksheet entries in the following year, assuming the inventory is on-sold, and explain the adjustments on a line-by-line basis.
PLEASE DO AVOID PLAGIARISM.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts