Strickland Company sells inventory to its parent, Carter Company, at a profit during 2020. Carter sells one-third of the inventory in 2020.In the consolidation worksheet for 2021, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following accounts would be credited to defer recognition of intra-entity gross profit with regard to the 2020 intra-entity transfers?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.

Question

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The Answer of Strickland Company sells inventory to its parent, Carter Company, at a profit during 2020. Carter sells one-third of the inventory in 2020.In the consolidation worksheet for 2021, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following accounts would be credited to defer recognition of intra-entity gross profit with regard to the 2020 intra-entity transfers?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.

Strickland Company Sells Inventory to Its Parent, Carter Company, at a Profit