Question

A parent sells merchandise to a subsidiary at a markup over its cost. The subsidiary has sold all of this merchandise by year-end. Which of the following worksheet elimination entries are needed to consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise?

Answer 1

To consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise, elimination entries are needed to remove the intercompany sales revenue and cost of goods sold.

Step-by-step explanation:

The worksheet elimination entries needed to consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise, would include the elimination of the intercompany sales revenue and the elimination of the intercompany cost of goods sold.

For example, if the parent sold merchandise to the subsidiary at a markup of $10 and the subsidiary sold all of this merchandise by year-end, the elimination entries would involve reducing the intercompany sales revenue by $10 and reducing the intercompany cost of goods sold by the same amount.

By eliminating these intercompany transactions, the consolidated financial statements will reflect the true economic transactions between the parent and subsidiary.