What Is the Amount of Unrealised Profit That Needs to Be

question 21

Multiple Choice

What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Barker Limited is the parent of Corbett Limited? (Ignore the tax effect) Barker purchases 500 units of inventory for $20 each.Barker sells this entire inventory to Corbett at a mark up of 50 per cent.At the end of the period,100 units are on hand.

• A) $1,000.
• B) $2,000.
• C) $3,000.
• D) $5,000.
• E) $10,000.

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Definitions:

Payables Turnover

A financial ratio that measures how fast a company pays its suppliers, calculated as the cost of sales divided by average accounts payable.

Cash Cycle

The duration of time it takes for a business to convert its investments in inventory and other resources into cash flows from sales.

Receivables Period

The average number of days required for a company to receive payments owed by its customers for goods or services rendered.

Inventory Period

The average length of time items are held in inventory before being sold.