Perez Inc. owns 80 percent of Senior Inc. During 20X2, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 20X2. For 20X2 consolidated financial statements, how should the summation of Perez and Senior income statement items be adjusted?

a. Sales and Cost of Goods Sold should be reduced by the intercompany sales amount.

b. Sales and Cost of Goods Sold should be reduced by 80 percent of the intercompany sales amount.

c. Net income should be reduced by 80 percent of the gross profit on intercompany sales amount.

d. No adjustment is necessary.