During the Current Period, a Subsidiary Entity Sold Inventories to a Parent

Multiple Choice

During the current period, a subsidiary entity sold inventories to a parent entity for $40 000. The inventories had previously cost the subsidiary entity $36 000. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

A) $\begin{array}{cccc}\text { Sales revenue } & \mathrm{Dr} & 40,000 & \\\text { Cost of sales } & \mathrm{Cr} & &36,000 \\\text { Inventories } & \mathrm{Cr} & &4,000 \\\text { Deferred tax asset } & \mathrm{Dr} & 1,200 & \\\text { Income tax expense } & \mathrm{Cr} & &1,200 \end{array}$
B) $\begin{array}{ccrr}\text { Sales revenue } & \mathrm{Dr} & 40000 & \\\text { Cost of sales } & \mathrm{Cr} & & 39000 \\\text { Inventories } & \mathrm{Cr} & &1000 \\\text { Deferred tax asset } & \mathrm{Dr} & 300 & \\\text { Income tax expense } & \mathrm{Cr} & & 300\end{array}$
C) $$\begin{array} { l l r r } \text { Sales reverue } & \mathrm { Dr } & 30000 \\\text { Cost of sales } & \mathrm { Cr } & & 27000 \\\text { Irventories } & \mathrm { Cr } & & 3000 \\\text { Deferred tax asset } & \mathrm { Dr } & 900 & \\\text { Income tax expense } & \mathrm { Cr } & & 900\end{array}$$
D) $$\begin{array} { c l c c } \text { Sales reverue } & \mathrm { Dr } & 10000 \\\text { Cost of sales } & \mathrm { Cr } & & 9000 \\\text { Irventories } & \mathrm { Cr } & & 1000 \\\text { Deferred tax asset } & \mathrm { Dr } & 300 & \\\text { Income tax expense } & \mathrm { Cr } & & 300\end{array}$$