Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells

question 49

Multiple Choice

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. $$\begin{array} { l r r r } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\text { Purchases by Posito } & \mathbf { \$ 8 , 0 0 0 } & \mathbf { \$ 1 2 , 0 0 0 } & \mathbf { \$ 1 5 , 0 0 0 } \\\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000\end{array}$$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $$\begin{array} { l c c c } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\text { Gargiulo's net income } & \mathbf { \$ 7 0 , 0 0 0 } & \mathbf { \$ 8 5 , 0 0 0 } & \mathbf { \$ 9 4 , 0 0 0 } \\\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000\end{array}$$ For consolidation purposes, what amount would be debited to cost of goods sold for the 2014 consolidation worksheet with regard to the unrealized gross profit of the 2014 intra-entity transfer of merchandise?

• A)$600.
• B)$750.
• C)$3,760.
• D)$3,000.
• E)$675.

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Definitions:

Comprehensive Income

The total change in equity for a reporting period other than from transactions with owners, including all non-owner changes in equity such as unrealized gains and losses.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Trading Securities

Financial instruments that are bought and sold for the purpose of generating profits on short-term fluctuations in price.

Held-To-Maturity

Held-to-maturity describes investment assets that a firm plans and is capable of retaining until they reach their due date.