REFERENCE: 01-06
Clancy Incorporated Sold $210,000 of Its Inventory to Reid

question 36

Multiple Choice

REFERENCE: 01-06
Clancy Incorporated sold $210,000 of its inventory to Reid Company during 2018 for $350,000.Reid sold $224,000 of this merchandise in 2018 with the remainder to be disposed of during 2019.Assume Clancy owns 30% of Reid and accounts for its investment using the equity method.
-What journal entry will be recorded in 2019 to recognize its share of the intra-entity gross profit that was deferred in 2018?
A.
$\begin{array}{llr} \text { Equity in income of Reid } &\$50,400\\ \text { Investment in Reid } & &\$50,400\\\end{array}$

B.
$\begin{array}{llr} \text {Investment in Reid } &\$50,400\\ \text { Equity in income of Reid } & &\$50,400\\\end{array}$

C.
$\begin{array}{llr} \text { Equity in income of Reid } &\$15,120\\ \text {Investment in Reid } &&\$15,120\\\end{array}$

D.
$\begin{array}{llr} \text { Investment in Reid } &\$15,120\\ \text { Equity in income of Reid } &&\$15,120\\\end{array}$

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Definitions:

Cost of Goods Sold

The direct costs tied to the production of goods sold by a company, including materials and labor.

Credit Terms

Credit terms are the payment conditions set by businesses regarding when and how buyers should pay for goods or services, often specifying the period and any discount for early payment.

Early Payment Discount

An incentive offered by sellers to buyers for paying an invoice earlier than the stated due date to improve cash flow.

Trade Discount

A reduction in the list price granted to customers, often based on volume of purchase or early payment, and not recorded separately in financial accounts.