During 2020, Odyssey Co. sold inventory to its wholly-owned subsidiary, Civic Co. The inventory cost $40,000 and was sold to Lord for $58,000. For consolidation reporting purposes, when is the $18,000 intra-entity gross profit recognized?
A) When goods are transferred to a third party by Civic.
B) When Civic pays Odyssey for the goods.
C) When Odyssey sold the goods to Civic.
D) When Civic receives the goods.
E) No gain can be recognized since the transfer was between related parties.

Question

Quizplus · Accepted Answer

The $18,000 intra-entity gross profit is recognized when the goods are sold to a third party by Civic, as this is when the profit is realized outside the consolidated entity.