When there are intercompany sales of inventory during the year and a three-part consolidation worksheet is prepared,elimination entries related to the intercompany sales:
I.Always are needed.
II.Are not needed if the entire inventory is resold to unrelated parties prior to the end of the year.

Question

Quizplus · Accepted Answer

Intercompany sales of inventory result in unrealized profit or loss, which needs to be eliminated in the consolidation process. Therefore, elimination entries related to intercompany sales always are needed. Option II is incorrect because even if the entire inventory is resold to unrelated parties prior to the end of the year, eliminating the unrealized profit or loss still is necessary.

When There Are Intercompany Sales of Inventory During the Year