Question

Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2018. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario held $60,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2018, is:

a) Ο $15,000.
b) Ο $20,000.
c) Ο $32,500.
d) Ο $30,000.
e) Ο $110,000.

Answer 1

amount of unrealized intra entity profit = = $20,000

so correct option is b) $20,000

Step-by-step explanation:

given data

acquired = 75% percent

inventory cost = $260,000

sold = $390,000

goods in inventory = $60,000

to find out

amount of intra entity gross profit for which recognition is deferred

solution

we first find here Markup on cost that is express as here

Markup on cost =
`($390000-$260000)/($260000)`

Markup on cost = 50%

so here amount of unrealized intra entity profit that should be eliminated in the consolidation process is

amount of unrealized intra entity profit = $60,000 ×
`(50)/(150)`

amount of unrealized intra entity profit = = $20,000

so correct option is b) $20,000