The Journal Entries to Eliminate Unrealised Profit in Closing Inventory

question 43

Multiple Choice

The journal entries to eliminate unrealised profit in closing inventory at 30 June 2014 were as follows: $$\begin{array} { | l | r | r | } \hline 30 \text { June } 2014 & & \\\hline \text { Dr Cost of goods sold } & 50000 & \\\hline \text { Cr lnventory } & & 50000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 15000 & \\\hline \text { Cr Income tax expense } & & 15000 \\\hline\end{array}$$ What are the journal entries to eliminate the unrealised profits in opening inventory the following period?

• A) \(\begin{array}{|l|r|l|}
• \hline 1 \text { July } 2014 & & \\
• \hline \text { Dr Cost of goods sold } & 50000 & \\
• \hline \text { Cr Inventory } & & 50000 \\
• \hline & & \\
• \hline \text { Dr Deferred tax asset } & 15000 & \\
• \hline \text { Cr Income tax expense } & & 15000 \\
• \hline
• \end{array}\)
• B) \(\begin{array}{|l|r|l|}
• \hline 1 \text { July } 2014 & & \\
• \hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\
• \hline \text { Cr Cost of goods sold } & & 50000 \\
• \hline & & \\
• \hline \text { Dr Deferred tax asset } & 15000 & \\
• \hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \\
• \hline
• \end{array}\)
• C) \[\begin{array} { | l | r | r | }
• \hline \text { 1 July } 2014 & & \\
• \hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\
• \hline \text { Cr lnventory } & & 50000 \\
• \hline & & \\
• \hline \text { Dr Deferred tax asset } & 15000 & \\
• \hline \text { Dr Opening retained earnings (1 July 2014) } & & 15000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { 1 July } 2014 & & \\
• \hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\
• \hline \text { Cr Cost of goods sold } & & 50000 \\\hline \\
• \hline \text { Dr Income tax expense } & 15000 \\
• \hline \text { Cr Opening retained earnings (1 July 2014) } && 15000 \\
• \hline
• \end{array}\]

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Definitions:

Sarbanes-Oxley 404

A provision of the Sarbanes-Oxley Act that requires publicly traded companies to have an internal control report in their annual reports, aiming to enhance the accuracy of corporate disclosures.

Internal Controls

Mechanisms and procedures implemented within an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Ethics Audit

A systematic evaluation of an organization's moral framework, practices, and culture to identify strengths and areas for improvement in promoting ethical behavior.

Differential Association

A theory proposing that individuals learn values, attitudes, techniques, and motives for criminal behavior through interaction with others.