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
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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