Homework SourseSenior Inc owns 85 of junior inc during 20X8 Senior sold goo
Senior Inc. owns 85% of junior inc. during 20X8
Senior sold good with the 25% gross profit to Junior. Juniors sold all these goods into 20X8. How should to 20X8 consolidated income statement items be adjusted?
A. No adjustment is necessary
B. Sales and cost of goods sold should be reduced by 85% of the intercompany sales
C. Net income should be reduced by 85% of the gross profit an intercompany sales
D.Sales and cost of goods sold should be reduced by the intercompany sales
Senior Inc. owns 85% of junior inc. during 20X8
Senior sold good with the 25% gross profit to Junior. Juniors sold all these goods into 20X8. How should to 20X8 consolidated income statement items be adjusted?
A. No adjustment is necessary
B. Sales and cost of goods sold should be reduced by 85% of the intercompany sales
C. Net income should be reduced by 85% of the gross profit an intercompany sales
D.Sales and cost of goods sold should be reduced by the intercompany sales
Senior sold good with the 25% gross profit to Junior. Juniors sold all these goods into 20X8. How should to 20X8 consolidated income statement items be adjusted?
A. No adjustment is necessary
B. Sales and cost of goods sold should be reduced by 85% of the intercompany sales
C. Net income should be reduced by 85% of the gross profit an intercompany sales
D.Sales and cost of goods sold should be reduced by the intercompany sales
Solution
If there is a downstream transaction of sale of inventory between parent and its subsidiary (i.e. Senior inc. sold goods to junior), then the unrealised profit on sale of inventory need to be adjusted from the profits and inventory. But in the given case, there is no unrealized profit on sale of inventory because all those goods are sold by junior to an unrelated party (i.e. no goods are unsold at year end from downstream transaction). Therefore no adjustment is required for this transaction in consolidated income statement.
Hence the correct option is A. No adjustment is necessary.
