An Acquisition Requires Revaluation of a Subsidiary's Date-Of-Acquisition Inventory from a Book

Multiple Choice

An acquisition requires revaluation of a subsidiary's date-of-acquisition inventory from a book value of $5 million to fair value of $3 million. The subsidiary uses FIFO and sells the inventory in the first year following acquisition. Which statement is true concerning the consolidation eliminating entries for this revaluation?

A) Each year following acquisition, entry (R) reduces inventory and entry (O) increases cost of goods sold by $2 million.
B) After the first year, entry (R) reduces inventory by $2 million, but entry (O) is not required.
C) No entry (R) is required after the first year, but eliminating entry (O) reduces cost of goods sold by $2 million in the first year.
D) No entries are required in any year.