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 debit 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 debit entry to eliminate unrealized intra-entity gross profit would be to adjust the cost of goods sold (COGS) of Carter Company to reflect the actual cost it paid to Strickland Company for the inventory it sold. Therefore, the correct choice is B, Cost of goods sold. The other choices would not be affected by the unrealized intra-entity gross profit and would not be adjusted in the consolidation worksheet in this situation.

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