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

question 108

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 credit 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:

Gross Margin

The difference between sales revenue and the cost of goods sold, indicating the profitability of products sold before other expenses.

Operating Expenses

Costs associated with the day-to-day functions of a business, excluding cost of goods sold.

Machine-Hours

A measure of production time used, indicating the number of hours machines are operated in the manufacturing process.

Maintenance Costs

Expenses associated with the routine care and preservation of assets to keep them in operational condition.