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. All of these goods were then sold by Orchid Ltd. for $25,000 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 and decrease cost of goods sold $10,000.
B) Increase sales $10,000 and increase cost of goods sold $10,000.
C) Decrease sales $10,000 and decrease cost of goods sold $7,500 and decrease ending inventory $2,500.
D) None of the above