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

question 94

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. $\begin{array}{lrrr}&2012&2013&2014\\\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \\\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000\end{array}$ 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 January 1 retained earnings for the 2014 consolidation worksheet entry with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?

• A)$3,000.
• B)$2,400.
• C)$1,000.
• D)$800.
• E)$900.

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