Jessica Ltd sold inventory during the current period to its wholly-owned subsidiary, Amelie Ltd, for $15,000. These items previously cost Jessica Ltd $12,000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8,000. The tax rate is 30%.

The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:

Sales	Dr	15,000
Cost of Sales	Cr		13,000
Inventory	Cr		2,000
Deferred Tax Asset	Dr	300
Income Tax Expense	Cr		300

Required:

A. Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entries.

B. Determine the consolidation worksheet entries in the following year, assuming the inventory is on-sold, and explain the adjustments on a line-by-line basis.

PLEASE DO AVOID PLAGIARISM.

Answer rating: 100% (QA)

A The accurate entry should be recorded as the following Sales C ost of sales Inventory Dr Cr Cr 150... View the full answer