lessica 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:

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Question 4:
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
Dr
15 000
Cost of Sales
Cr
13 000
Inventory
Cr
2 000
Deferred Tax Asset
Dr
300
Income Tax Expense
Cr
300
Required
(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line by line
basis the correct adjustment entries.
(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.
->
Transcribed Image Text:Question 4: 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 Dr 15 000 Cost of Sales Cr 13 000 Inventory Cr 2 000 Deferred Tax Asset Dr 300 Income Tax Expense Cr 300 Required (i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line by line basis the correct adjustment entries. (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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