3) For consolidation purposes, what amount would be debited to cost of goods sold for the 2012/2013/2014 consolidation worksheet with regard to the unrealized gross profit of that year’s intra-entity transfer of merchandise?
4) For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012/2013/2014 consolidation worksheet entry with regard to the unrealized gross profit of the prior year’s intra-entity transfer (if any) of merchandise?
Homework Answers
ANSWER:
As per the given question
We will debit the cost of goods sold with the amount of unrealized profit on the intra-entity transfer. This adjustment is made with respect to the value of ending inventory, since, it includes the portion of profit that us yet to be realized.
The value of actual sale made by Gargiulo to Positon will get eliminated at the time of preparation of consolidated financial statements. Only the unrealized portion left in inventory will get accounted for. The formula for calculating the amount to be debited to cost of goods sold with regard to unrealized profit would be:
Amount = Inventory*Profit on Selling Price a Percentage
__________
Solution:
Here, Inventory = 1,200 and Profit on Selling Price Percentage = 25%
Using these values in the above formula, we get,
Amount = 1,200*25% = $300 (which is Option A)
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