Question

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2017. With respect to one-third of the inventory sold to Fisher, Walsh accounts for it using the equity method of accounting..

In the consolidation worksheet for 2018, which of the following accounts would be credited to elimate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers?

A. Retained earnings

B. Cost of goods sold

C. Inventory

D. Investment in Fisher Company

E. Sales

Answer 1

The correct answer is D. Investment in Fisher Company .

Step-by-step explanation:

Registration for this transaction must be directly on the investment in Fisher Company, since it corresponds to a subsidiary company that consumes resources from the principal. If a normal sale and purchase process is carried out, additional charges will be generated due to handling as if they were two different companies. The results of the subsidiary must be recognized within the consolidation of the main company, considering the agreed conditions and the type of good or service being provided.