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Explain on a line-by-line basis the correct adjustment entry

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Question: Cost of Sales Cr 13 000 Inventory Cr 2000Deferred Tax Asset Dr 300 (a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:

Sales Dr 15 000

Income Tax Expense Cr 300

Required (i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry.

(ii) Determine the consolidation worksheet entries in the following year, assuming the inventory has been -sold, and explain the adjustments on a line-by-line basis.

Reference no: EM132728895

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