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 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

The credit entry to eliminate unrealized intra-entity gross profit is made to the Inventory account to reduce the inventory value to its cost basis, removing the profit that has not yet been realized through sales to external parties.

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