Required (i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry. (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
(a) 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
sales dr15000
cost of sales cr 13000
inventry cr 2000
defferd tex assests dr300
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 entry.
(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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