On January 1,20X3,Dwayne Ltd

Multiple Choice

On January 1,20X3,Dwayne Ltd.formed Carlos Co. ,a 100% owned subsidiary.During 20X6,Dwayne sold Carlos $100,000 in goods.The unrealized profit in Carlos' inventories was $20,000 at December 31,20X5 and $25,000 at December 31,20X6.Ignoring income taxes,what adjustment should be made to the consolidated financial statements for the year ended December 31,20X6 to reflect the unrealized profit in Carlos' ending inventory?

A) Inventory at December 31,20X6 will be increased by $25,000.
B) Cost of goods sold for 20X6 will be decreased by $25,000.
C) Retained earnings at the end of 20X6 will be decreased by $25,000.
D) Retained earnings at the end of 20X6 will be decreased by $5,000.