Mallard Ltd

Mallard Ltd. acquired 75% of the outstanding common shares of Teal Ltd. at December 31, 20X1, for $900,000. Mallard has recorded its investment using the cost method.
- In 20X8, Mallard sold goods to Teal for $260,000 at a gross margin of 30% and Teal sold goods to Mallard for $180,000 at a gross margin of 50%. At the end of 20X8, Mallard still had $60,000 in inventory of goods purchased from Teal and Teal still had $45,000 in inventory of goods purchased from Mallard. What adjustment should be made for Mallard's 20X8 consolidated financial statements with respect to goods sold to Teal that are still in ending inventory?

A) Decrease cost of sales by $13,500; decrease ending inventory by $10,125; increase non-controlling interest by $3,375.
B) Increase cost of sales by $13,500; decrease ending inventory by $10,125; increase non-controlling interest by $3,375.
C) Decrease cost of sales by $13,500; decrease ending inventory by $13,500.
D) Increase cost of sales by $13,500; decrease ending inventory by $13,500.

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