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

Question

Quizplus · Accepted Answer

To eliminate the intra-entity transfer of inventory, we would need to credit the cost of goods sold (COGS) account in the consolidation worksheet. This account represents the expense of the inventory that was sold by Carter to external customers, including the portion of inventory that was originally sold by Strickland to Carter. By crediting COGS, the profit from the intra-entity transfer is eliminated, and the remaining inventory in Carter's hands is recorded at its original cost. Therefore, the credit entry to eliminate the intra-entity transfer of inventory is Choice B, Cost of goods sold.

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