Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2020. With respect to one-third of the inventory sold to Fisher, Walsh accounts for it using the equity method of accounting.In the consolidation worksheet for 2020, which of the following accounts would be debited to eliminate unrecognized 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 Fisher Company.
E) Sales.

Question

Quizplus · Accepted Answer

The Cost of Goods Sold account is debited to eliminate the unrecognized intra-entity gross profit from the inventory sold to the subsidiary, as this profit is not realized in the consolidated financial statements.

Walsh Company Sells Inventory to Its Subsidiary, Fisher Company, at a Profit