Answer: Option (b) is correct.
Explanation:
Given that,
Revenues = $300,000
Merchandise it purchased = $75,000
Salaries paid = $14,000
Owners invested = $23,000
Borrowed on a five-year note = $23,000
Interest paid = $3,000
Paid for a two-year insurance policy = $6,800
Income tax rate = 9%
Gross Margin = Revenues - Cost of Goods Sold
= $300,000 - $75,000
= $225,000
Profit before tax = Gross Margin - Salaries - Insurance payment - Interest
= $225,000 - 14,000 - 3,400 - 3,000
= $204,600
Net Income = Profit before tax - Tax at 9%
= $204,600 - 18,414
= $186,186
Answer:
The reason to prepare the consolidation worksheet is to maintain the record of what is finally entered in the books to record the transactions in between the holding and subsidiary.
This basically thus, requires the elimination of all the assets and liabilities of the subsidiary, and creation of such assets and liabilities into the balances of the holding(parent) company. In this manner the elimination is necessary to record.
So that there is no error in the form of multiple record of assets and liabilities, or in the form of no record of assets and liabilities of the subsidiary.
