Question
Sally owns 100% of the capital stock of both AAA Corporation and BBB Corporation. AAA purchases merchandise inventory from BBB at 140 percent of BBBs
Sally owns 100% of the capital stock of both AAA Corporation and BBB Corporation. AAA purchases merchandise inventory from BBB at 140 percent of BBBs cost. During 20X0, BBB sold merchandise that had cost it $40,000 to AAA. AAA sold all of this merchandise to unrelated customers for $81,200 during 20X0. In preparing combined financial statements for 20X0, Sallys bookkeeper disregarded the common ownership of AAA and BBB. By what amount was unadjusted revenue overstated in the combined income statement for 20X0? A. $81,200 B. $40,000 C. $16,000 D. $56,000f
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