What Is the Amount of Unrealised Profit That Needs to Be

question 28

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 Morecombe Limited is the parent of Wise Limited? (Ignore the tax effect) Morecombe purchases 500 units of inventory for $20 each.Morecombe sells this entire inventory to Wise at a mark up of 25 per cent.Wise then sells half of the inventory to an external party.Half of the remaining amount (after the external sale) is sold back to Morecombe for $2,500.

• A) Cannot determine from the information given.
• B) $300.
• C) $625.
• D) $1 250.
• E) $2 500.

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Definitions:

Financial Statement

Reports that summarize the financial performance, position, and cash flows of a business for a specific period.

Account

An account is a record within an accounting system that is used to store financial transactions of a particular type, such as assets, liabilities, equity, revenues, and expenses.

Withdrawals

Money or other assets taken out from a business by its owner(s) for personal use.

Accounts Receivable

The financial claim a company holds against its customers for sales made on credit, indicating future cash inflows.