Push Company owns 60% of Shove Company's outstanding common stock.
Intra-entity sales are as follows:

-Assume Shove sold the inventory to Push.
Using the fully adjusted equity method,what journal entry would be recorded by Push to defer the unrealized gross profit on inventory sales to Shove in 20X1?

Question

Push Company owns 60% of Shove Company's outstanding common stock.
Intra-entity sales are as follows:
 
-Assume Shove sold the inventory to Push.
Using the fully adjusted equity method,what journal entry would be recorded by Push to defer the unrealized gross profit on inventory sales to Shove in 20X1?

Quizplus · Accepted Answer

The fully adjusted equity method requires the deferral of unrealized intercompany gross profits on inventory sales from the selling to the buying affiliate. In this case, Shove sold inventory to Push, so Push must defer the unrealized gross profit on the sale. The entry should debit Intercompany Sales of $42,000 (the selling price of the inventory) and credit Unrealized Gross Profit on Intercompany Sales - Inventory of $18,000 (60% of the gross profit of $30,000). Therefore, option B is the correct journal entry for Push to record.

Push Company Owns 60% of Shove Company's Outstanding Common Stock