Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost. During 20X8, Venus sold inventory to Mars that it had purchased for $25,000. Mars sold all of this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined financial statements for 20X8, Earth's bookkeeper disregarded the common ownership of Mars and Venus.

Based on the information given above, what amount should be eliminated from cost of goods sold in the combined income statement for 20X8?

a. $31,250

b. $25,000

c. $56,892

d. $6,250

Based on the information given above, by what amount was unadjusted revenue overstated in the combined income statement for 20X8?

a. $25,000

b. $56,892

c. $31,250

d. $6,250

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