When there are intercompany sales of inventory during the year and a three-part consolidation worksheet is prepared,consolidation 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 involve transactions between two companies that are part of the same consolidated group. These transactions result in unrealized profits that need to be eliminated in the consolidation process to avoid double counting. Therefore, consolidation entries related to intercompany sales are always needed regardless of whether the inventory is resold to unrelated parties at the end of the year. Option II is incorrect because it implies that intercompany sales do not require elimination if the inventory is resold to unrelated parties, which is not accurate.

When There Are Intercompany Sales of Inventory During the Year