On February 1, 2013 Smith Company Sold Inventory to Its

Multiple Choice

On February 1, 2013 Smith Company sold inventory to its wholly owned subsidiary Orchid Ltd. for $10,000. These goods had previously cost $7,500. 75% of these goods were then sold by Orchid Ltd. for $15,000 by the February 28, 2013 year-end. What adjustments are required for the preparation of the consolidated financial statements? Ignore the effects of income taxes.

A) Decrease sales $10,000, decrease cost of goods sold $9,375 and decrease ending inventory $625.
B) Increase sales $10,000, increase cost of goods sold $9,375 and increase ending inventory $625.
C) Decrease sales $10,000, decrease cost of goods sold $7,500 and decrease ending inventory $2,500.
D) Increase sales $10,000, increase cost of goods sold $7,500 and increase ending inventory $2,500.