Strickland Company sells inventory to its parent, Carter Company, at a profit during 2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2013, assuming Carter uses the initial value methd of accounting for its investment in Strickland, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.

Question

Quizplus · Accepted Answer

To eliminate unrealized intra-entity gross profit, the parent company (Carter) must reduce the cost of goods sold by the amount of the intra-entity profit. Therefore, the credit entry to eliminate unrealized gross profit would be to Cost of Goods Sold.

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