Question 6 10 points Save Answer P Company owns 70% of s company. During 2016, P

Question

Question 6 10 points Save Answer 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 i 2016F TOT consolidated financial statements, how should the summation of P Company and s Company income statement items be adjusted? A. Sales and cost of goods sold should be reduced by 70% of the intercompany sales. B. Net income should be reduced by 70% of the gross profit on intercompany sales. O C. Sales and cost of goods sold should be reduced by the intercompany sales. . D. No adjustment is necessary

Explanation / Answer

Select - Option - D ........ No adjustment is necessary

In the case of Inter company sales ( that is sales between P and S) need for adjustment of unrealised profit araises only when some part of the goods sold still remains unsold. In this case all goods were sold by S company. Hence no adjustment is needed as all the profit is realised.

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