Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010. In the consolidation worksheet for 2010, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.

Question

Quizplus · Accepted Answer

To eliminate unrealized intra-entity gross profit, the parent company's inventory and cost of goods sold accounts must be adjusted. The debit entry will be made to cost of goods sold, reducing the profit of the parent company and eliminating the unrealized gross profit from the intra-entity sale. Therefore, the correct choice is B, cost of goods sold.

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