Strickland Company Sells Inventory to Its Parent, Carter Company, at a Profit

question 30

Multiple Choice

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010. In the consolidation worksheet for 2011, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

• A) Retained earnings.
• B) Cost of goods sold.
• C) Inventory.
• D) Investment in Strickland Company.
• E) Sales.

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Definitions:

Cash Flow Statement

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations, and all cash outflows that pay for business activities and investments during a given period.

IFRS

International Financial Reporting Standards, which are a set of accounting rules followed by companies across the globe for maintaining their financial statements.

Indirect Method

A method used in cash flow statements to adjust net income for the changes in non-cash accounts to arrive at operating cash flows.