Aoala Ltd owns all of the shares of Kangaroo Ltd In April 2019 Aoala Ltd sells inventory to Kangaroo Ltd for $12 000 This inventory had previously cost Aoala Ltd $8000 and it remains unsold by Kangaro

Consolidation Worksheet Adjusting Entries:

1. Elimination of intercompany sale:

Inventory (Kangaroo Ltd) $12,000 Cost of Sales (Aoala Ltd) $8,000 Profit on Sale of Inventory $4,000

2. Adjustment for unrealized profit in ending inventory:

Inventory (Kangaroo Ltd) $4,000 Retained Earnings (Aoala Ltd) $2,800 Deferred Tax Liability $840 Deferred Tax Asset $840

Note: The deferred tax liability and asset are calculated as 30% of the unrealized profit.

3. Elimination of intercompany dividends:

Dividends Declared (Kangaroo Ltd) $X Dividend Income (Aoala Ltd) $X

Note: Depending on the information provided, the amount of intercompany dividends may need to be determined.

Once these adjusting entries have been made, the consolidated financial statements can be prepared