Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows:

-Assume Shove sold the inventory to Push.Using the fully adjusted equity method,what journal entry would be recorded by Push to defer the unrealized gross profit on inventory sales to Shove in 20X1?

Question

Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows:
 
-Assume Shove sold the inventory to Push.Using the fully adjusted equity method,what journal entry would be recorded by Push to defer the unrealized gross profit on inventory sales to Shove in 20X1?

Quizplus · Accepted Answer

The journal entry would be to debit Intercompany Receivable for $150,000 (the cost of the inventory sold by Shove to Push) and credit Intercompany Sales for $150,000 (to eliminate the revenue from the sale). Push would also debit Intercompany Cost of Goods Sold for $100,000 (Shove's cost to produce the inventory) and credit Inventory for $100,000 (to remove the inventory from Push's books). This results in a deferred gross profit of $50,000, which would be recorded with a debit to Deferred Intercompany Gross Profit and a credit to Intercompany Cost of Goods Sold. Therefore, option B is correct.

Push Company Owns 60% of Shove Company's Outstanding Common Stock