During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $30 000. All the inventories were still on hand at the end of the year. The consolidation adjustment entry would include the following line item:

A) CR Inventories $30 000.
B) CR Inventories $24 000.
C) CR Inventories $18 000.
D) CR Inventories $6 000.

Question

Utkarsh Anand · Accepted Answer

Final Answer : D, Explanation :  When a subsidiary sells goods to its parent entity, any profit made on the sale must be eliminated from the consolidated financial statements to prevent double counting. In this case, the subsidiary made a profit of $6 000 on the sale of inventories to its parent. Therefore, the consolidation adjustment would involve crediting the Inventories account by $6 000 to eliminate the profit. The cost of the inventories ($30 000) is not relevant to this adjustment.

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