Question

James Corporation owns 80 percent of Carl Corporation’s common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James’s inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of intra-entity gross profit in inventory at December 31 that should be eliminated in the consolidation process isa. $24,000b. $30,000c. $20,000d. $75,000

Answer 1

Answer:

unrealised profit on unsold stock with james corporation =  $30000

so correct option is b. $30,000

Explanation:

owns = 80 %

sold = $250,000

inventory = 40 %

Gross profit = 20 %

Gross profit = 30 %

amount of intra entity gross profit  

solution

unsold stock with james corporation are  = 40 % of $250000

unsold stock with james corporation = $100,000

and

unrealised profit on unsold stock with james corporation is in consolidated statement is = unsold stock with james corporation × profit rate i.e 30%

unrealised profit on unsold stock with james corporation = $100000 × 30%

unrealised profit on unsold stock with james corporation =  $30000

so correct option is b. $30,000