Question

Playa Inc. owns 85 percent of Seashore Inc. During 20X8, Playa sold goods with a 25 percent gross profit to Seashore. Seashore sold all of these goods in 20X8. How should 20X8 consolidated income statement items be adjusted g

Answer 1

Debit the Cost of Sales and,

Credit the Revenue.

Step-by-step explanation:

Transactions that occur within a group of companies must be eliminated. Playa is a Parent (85%) and Seashore Inc is a Subsidiary.

The effect of the Sale by Playa to Seashore is that Group Cost of Sales and Revenue would be over-valued by the price of intragroup sale.

Thus, the adjustment for this intragroup sale, is to Debit the Cost of Sales and Credit the Revenue.