During the current period, a subsidiary entity sold inventories to a parent entity for $30 000. The inventories had previously cost the subsidiary entity $24 000. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

Question

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The adjustment entry to eliminate the unrealized profit on inventories transferred from the subsidiary to the parent is:

Dr. Cost of goods sold $22,500
Cr. Inventories $22,500

The cost of goods sold is calculated as:
Cost of inventories sold to outside party = $30,000 x 75% = $22,500
Realized profit = Cost of inventories sold to outside party - Cost of inventories = $22,500 - $24,000 = -$1,500
Unrealized profit = -$1,500
Since the unrealized profit is negative, it is credited to the inventories account. The adjustment entry is made in the consolidation worksheet, as the inventories were transferred within the group. The subsidiary's inventory balance of $30,000 is eliminated from the consolidated inventories balance.

During the Current Period, a Subsidiary Entity Sold Inventories to a Parent