Parent Co. owns 80% of Subsidiary Co. During 2021, Parent Co. sold goods with a 40% gross profit to Subsidiary Co. Subsidiary Co. sold all these goods in 2021. For 2021, consolidated financial statements, how should the summation of Parent Co. and Subsidiary Co.'s Income statement be adjusted? A. No adjustment is necessary. B. Sales and cost of goods sold should be reduced by 80% of the intercompany sales. C. Net income should be reduced by 80% of the gross profit on the intercompany sales. D. Sales and cost of goods sold should be reduced by the intercompany sales.
Parent Co. owns 80% of Subsidiary Co. During 2021, Parent Co. sold goods with a 40% gross profit to Subsidiary Co. Subsidiary Co. sold all these goods in 2021. For 2021, consolidated financial statements, how should the summation of Parent Co. and Subsidiary Co.'s Income statement be adjusted? A. No adjustment is necessary. B. Sales and cost of goods sold should be reduced by 80% of the intercompany sales. C. Net income should be reduced by 80% of the gross profit on the intercompany sales. D. Sales and cost of goods sold should be reduced by the intercompany sales.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 98.2C
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Parent Co. owns 80% of Subsidiary Co. During 2021, Parent Co. sold goods with a 40% gross profit to Subsidiary Co. Subsidiary Co. sold all these goods in 2021. For 2021, consolidated financial statements, how should the summation of Parent Co. and Subsidiary Co.'s Income statement be adjusted?
A. No adjustment is necessary.
B. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
C. Net income should be reduced by 80% of the gross profit on the intercompany sales.
D. Sales and cost of goods sold should be reduced by the intercompany sales.
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