Malone Co. owned 70% of Bernard Corp.'s common stock. During November 2021, Bernard sold merchandise to Malone for $150,000. At December 31, 2021, 40% of this merchandise remained in Malone's inventory. For 2021, gross profit percentages were 25% of sales for Malone and 30% of sales for Bernard. The amount of intra-entity gross profit remaining in ending inventory at December 31, 2021 that should be eliminated in the consolidation process is:
A) $11,250.
B) $14,400.
C) $18,000.
D) $36,000.
E) $45,000.

Question

Quizplus · Accepted Answer

The intra-entity gross profit to be eliminated is calculated as follows: Bernard's gross profit percentage is 30%, so the gross profit on the $150,000 sale is $150,000 x 30% = $45,000. Since 40% of the merchandise remains in Malone's inventory, the intra-entity gross profit remaining is $45,000 x 40% = $18,000.

Malone Co Owned 70% of Bernard Corp