Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells

question 115

Multiple Choice

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.
For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2014 consolidation worksheet entry with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?

• A) $3,000.
• B) $2,400.
• C) $1,000.
• D) $800.
• E) $900.

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Definitions:

Agents

Individuals or entities authorized to act on behalf of others in financial transactions or negotiations.

Principals

Individuals or entities that own a significant interest in a business or an investment, often referred to as the main parties involved in a transaction.

Working Capital Management

The process of managing short-term assets and liabilities to ensure a company can meet its operating expenses and short-term debt obligations.

Accounts Payable

Debt incurred by a business to its vendors or lenders for products and services received, yet payment has not been made.