Strickland Company sells inventory to its parent, Carter Company, at a profit during 2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2012, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.

Question

Quizplus · Accepted Answer

The unrealized intra-entity gross profit is included in the ending inventory, so a credit entry is made to the Inventory account to eliminate this profit from the consolidated financial statements.

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