REFERENCE: Ref.05_03
Strickland Company sells inventory to its parent,Carter Company,at a profit during 2009.Select the correct answer.
-With regard to the intercompany sale,which of the following choices would be a debit entry in the consolidated worksheet for 2009?

Question

Quizplus · Accepted Answer

The intercompany sale results in a profit for Strickland Company, which is a subsidiary of Carter Company. This profit is recognized as revenue in the consolidated financial statements. Therefore, the cost of goods sold (COGS) for the inventory sold to Carter Company is increased by the amount of the profit on the sale, which would result in a debit entry to COGS in the consolidated worksheet. Retained earnings, inventory, investment in Strickland Company, and additional paid-in capital are not affected by the intercompany sale and would not be appropriate choices for a debit entry in the consolidated worksheet.

REFERENCE: Ref.05_03 Strickland Company Sells Inventory to Its Parent,Carter Company,at a Profit