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

Question

Business

Tiana

1 June, 17:47

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

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Answers (1)

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Missie · Answer 1

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