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 2014 consolidation worksheet entry with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?
A) $3,000.
B) $2,400.
C) $1,000.
D) $800.
E) $900.

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 2014 consolidation worksheet entry with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?
A) $3,000. 
B) $2,400. 
C) $1,000. 
D) $800. 
E) $900.

Quizplus · Accepted Answer

Realized Gains of Sub 2013 ($4,000 × .25) = $1,000

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