question archive During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary

During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary

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During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary. The subsidiary also makes sales of inventory at a profit to its parent during the same year. Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another. Consolidated revenues for the year should exclude:

  1. 80 percent of the total revenues from intercompany sales.
  2. total revenues from intercompany sales.
  3. only the revenues from the subsidiary's intercompany sales.
  4. only the revenues from the parent's intercompany sales.

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Answer:

B .

Step-by-Step explanation

In the given case, parent makes sale to subsidiary, and subsidiary makes sale to parent vis-a-versa.

While calculating consolidated revenue, the total revenue from intercompany sales should be taken into account.

 

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