CH 13.docx - For consolidation purposes that $30 profit...

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For consolidation purposes, that $30 profit cannot sit there in a consolidated financial state ment. Also, that $130 of inventory that's sitting on the subsidiary's booksis overstated for c onsolidation purposes. But on a separate financial statement purpose, the subsidiary's fina ncial statements of $130 of goods they have in theirwarehouse is perfectly legitimate, just n ot for consolidation purposes. On the books of the parent, that's a legitimate sale, as we said. Titles transferred, the adjust ments necessary to arrive at the correct balance are as follows. We'regoing to have our C e ntry that eliminates this $30 of profit. That profit was recorded on the sale of the inventory. We're going to have an adjustment to inventory. So you notice we have a credit to inventory. That reduces inventory, and we have a debit to cost of goods sold. That increases the cost on our income statement. Asa result, this has a way of eliminating the overstated inventory balance on the consolidated financial statemen
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  • Spring '14
  • Generally Accepted Accounting Principles

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