A subsidiary entity sold inventory to its parent entity at a profit of $4000. The goods had originally cost the subsidiary $10 000. At the end of the year all the inventory was still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

Question

Quizplus · Accepted Answer

The profit of $4,000 is unrealized because the inventory is still on hand at year-end. Therefore, the inventory must be adjusted by crediting it by the unrealized profit amount of $4,000.

A Subsidiary Entity Sold Inventory to Its Parent Entity at a Profit