(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.  15000 Cost of Sales                                     Cr.13000 Inventory                                            Cr.   2000   Deferred Tax asset        Dr.300 Income Tax Expenses                           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.

Question 5 Week 9

• (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.  15000

Cost of Sales                                     Cr.13000

Inventory                                            Cr.   2000

Deferred Tax asset        Dr.300

Income Tax Expenses                           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.