Perez, Inc. owns 80% of Senior, Inc. During Year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in Year 1. For Year 1 consolidated financial statements, how should the summation of Perez and Senior's income statement items be adjusted?
a. No adjustment is necessary.
b. Sales and cost of goods sold should be reduced by the intercompany sales.
c. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
d. Net income should be reduced by 80% of the gross profit on intercompany sales.
Explanation
Choice "b" is correct. Sales and cost of goods sold should be reduced by the intercompany sales.
Perez's sales price is Senior's purchase price. When Senior sells to an outside party, this amount becomes Senior's cost of sales. The sales price to the outsider is okay and the original cost of sales on Perez's books is okay, but the sales and cost of sales are overstated, for a like amount, by the intercompany transaction.
Note: No inventory adjustment is needed since none of the intercompany goods sold are on hand at year end.
了解详情30000元/4科
