Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.
For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012 consolidation worksheet entry with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?
A) $0.
B) $1,600.
C) $300.
D) $240.
E) $270.

Question

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. 
For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012 consolidation worksheet entry with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?
A) $0. 
B) $1,600. 
C) $300. 
D) $240. 
E) $270.

Quizplus · Accepted Answer

Zero - No Earnings Adjustment would be necessary in January 2012

Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells