Question

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to...

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $342,500. At December 31, 60 percent of this merchandise remains in James's inventory. Gross profit percentages were 25 percent for James and 35 percent for Carl. The amount of intra-entity gross profit in inventory at December 31 that should be eliminated in the consolidation process is

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Answer #1
Answer:
Amount of Ending inventory
             = Cost of Merchandise Sold x % Unsold at Dec. 31
             =    $ 342,500 x 60%
            =     $ 205,500
Intra-entity gross profit
              = Amount of Ending inventory x Gross Profit Percent for Carl
              = $ 205,500 x 35%
              =    $ 71,925
Intra-entity gross profit =    $ 71,925
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