For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2011 consolidation worksheet entry with regard to the unrealized gross profit of the 2010 intra-entity transfer of merchandise?
A) $240.
B) $300.
C) $2,000.
D) $1,600.
E) $270.

Question

Quizplus · Accepted Answer

The unrealized gross profit ($2,000) related to the 2010 intra-entity transfer of merchandise would be eliminated in 2011 when the consolidation is prepared. This means that the entire amount of gross profit from the intra-entity transfer would be removed from the 2010 retained earnings of the selling subsidiary. The debit to retained earnings would be $2,000, and since the consolidation is prepared as of January 1, 2011, this amount would be brought forward to the beginning balance of retained earnings for the year 2011. Therefore, the amount that would be debited to January 1 retained earnings for the 2011 consolidation worksheet entry with regard to the unrealized gross profit of the 2010 intra-entity transfer of merchandise is $300 ($2,000/7 years).

For Consolidation Purposes, What Amount Would Be Debited to January