E 5-2

[Based on AICPA] General problems 1. Pop, Inc., owns 80 percent of Son, Inc. During 2016, Pop sold goods with a 40 percent gross profit to Son. Son sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of Pop and Son income statement items be adjusted?

a Sales and cost of goods sold should be reduced by the intercompany sales.

b Sales and cost of goods sold should be reduced by 80 percent of the intercompany sales.

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

d No adjustment is necessary.