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 2011, assuming Carter uses the initial value method of accounting for its investment in Strickland, 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

In 2011, the unrealized intra-entity gross profit from 2010 sales needs to be eliminated from retained earnings because Carter uses the initial value method, which affects the parent's retained earnings.

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