Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010.
-In the consolidation worksheet for 2010, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 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, a debit entry equal to the unrealized profit should be made to Cost of Goods Sold. Therefore, the correct choice is (B) Cost of Goods Sold. Retained Earnings, Inventory, Investment in Strickland Company and Sales are not relevant in eliminating the unrealized intra-entity gross profit.

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