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 $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows: Sales. Dr15 000 Cost of Sales Cr 13 000 Inventory Cr 2 000 DeferredTaxAsset Dr 300 Income Tax ExpenseCr 300 Required: (i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry.
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 $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:
Sales. Dr15 000
Cost of Sales Cr 13 000
Inventory Cr 2 000
DeferredTaxAsset Dr 300
Income Tax ExpenseCr 300
Required:
(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct
(ii)Determine the consolidation worksheet entries in the following year, assuming the inventory has been –sold, and explain the adjustments on a line-by-line basis.
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