Which Statement Is True Concerning Unrecognized Profits in Intra-Entity Inventory

question 28

Multiple Choice

Which statement is true concerning unrecognized profits in intra-entity inventory sales when an investor uses the equity method?

• A) The investee must defer upstream ending inventory profits.
• B) The investee must defer upstream beginning inventory profits.
• C) The investor must defer downstream ending inventory profits.
• D) The investor must defer downstream beginning inventory profits.
• E) The investor must defer upstream beginning inventory profits.

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Definitions:

Inventory

Items held for sale in the ordinary course of business, as well as supplies and raw materials intended for use in producing goods for sale.

Operating Activities

Business activities that are directly related to the production and delivery of goods and services, generating revenue.

Cash Flow

The net amount of cash and cash-equivalents moving into and out of a business, crucial for assessing the liquidity of an entity.

Trading Investments

Securities that a company holds for the purpose of selling them in the near term to profit from short-term price fluctuations.