The Journal Entries to Eliminate Unrealised Profit in Closing Inventory

question 55

Multiple Choice

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

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

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and loan payments.

Total Cost

The sum of all expenses incurred by a firm in producing goods or services, including both fixed and variable costs.

Maximizing Profits

The process of adjusting production and sales strategies to achieve the highest possible return from operations.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs.