Selected information from the separate and consolidated balance sheets and income statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, 20X5, and for the year then ended is as follows:
Additional information:
During 20X5, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales.
-In Pare's consolidating worksheet,what amount of unrealized intercompany profit was eliminated?

Question

Selected information from the separate and consolidated balance sheets and income statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, 20X5, and for the year then ended is as follows:
  Additional information:
During 20X5, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales.
-In Pare's consolidating worksheet,what amount of unrealized intercompany profit was eliminated?

Quizplus · Accepted Answer

To eliminate unrealized intercompany profit in a consolidation worksheet, the parent's profit on intercompany sales and the subsidiary's cost of goods sold on those sales must be eliminated. Since Pare sold goods to Shel at the same markup on cost that Pare uses for all sales, the unrealized intercompany profit is equal to the markup on the cost of goods sold. Based on the given information, the markup on cost is $6,000 ($60,000 x 10%), which is the amount eliminated in Pare's consolidation worksheet. Therefore, the correct answer is B) $6,000.

Selected Information from the Separate and Consolidated Balance Sheets and Income