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.

---

Definitions:

Pure Chase Strategy

A demand matching or production strategy where output is adjusted to match the demand exactly, with no inventory buffer.

Demand Requirements

The specific quantities of products or services that a market or customer base needs over a particular period.

Pure Level Strategy

A production strategy where the output levels are kept constant despite fluctuating demand, aiming at minimizing changes in production rates.