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 credit entry to eliminate the intra-entity transfer of inventory?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Fisher Company.
E) Sales.

Question

Quizplus · Accepted Answer

To eliminate the intra-entity transfer of inventory, the cost of goods sold account needs to be credited. This is because the cost of goods sold represents the expense of goods sold during the year and is used to remove the profit that Walsh made on the sale of inventory to Fisher. Therefore, the correct entry to eliminate the intra-entity transfer of inventory would be a credit entry to the cost of goods sold.

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