P Company owns 70% of S Company. During 2016, P Company sold goods with a 30% gr

Question

P Company owns 70% of S Company. During 2016, P Company sold goods with a 30% gross profit to s company S company sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of P Company and S Company income statement items be adjusted? O A. No adjustment is necessary. O B. Sales and cost of goods sold should be reduced by 70% of the intercompany sales. C. Net income should be reduced by 70% of the gross profit on intercompany sales. D. Sales and cost of goods sold should be reduced by the intercompany sales. Question 7 of 10

Explanation / Answer

The correct answer is Option (D) i.e. Sales and cost of goods sold should be reduced by the intercompany sales:-

Since P company is a holding company of S company, hence in the consolidated financial statement, Sales and cost of goods sold should be reduced by the intercompany sales:-

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