Polly, Inc

Multiple Choice

Polly, Inc. owns 80% of Saffron, Inc. During 2017, Polly sold goods with a 40% gross profit to Saffron. Saffron sold all of these goods in 2017. For 2017 consolidated financial statements, how should the summation of Polly and Saffron income statement items be adjusted?

A) Sales and cost of goods sold should be reduced by the intercompany sales.
B) Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
C) Net income should be reduced by 80% of the gross profit on intercompany sales.
D) No adjustment is necessary.