Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher. 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 Fisher Company.
E) Sales.

Question

Quizplus · Accepted Answer

To eliminate unrealized intra-entity gross profit, the cost of goods sold needs to be debited. This means that the entry would reduce the profit made by Walsh Company on the sale of inventory to its subsidiary, Fisher Company. The other options, such as Retained Earnings and Investment in Fisher Company, do not relate to the elimination of unrealized profit and therefore are not applicable in this scenario.

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