Question

Prince Co. owned 80% of Kile Corp.'s common stock. During October 2018, Kile sold merchandise to Prince for $140,000. At December 31, 2018, 50% of this merchandise remained in Prince's inventory. For 2018, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of intra-entity gross profit remaining in ending inventory at December 31, 2018 that should be eliminated in the consolidation process is:

Answer 1

Answer:

28,000

Explanation:

First, we will check for how much of the goods are still inside the Firm:

140,000 intra entity transaction.

50% remain the other part were sold to third parties

so on Prince we have inventory for 70,000 on intra entity transaction

Second, we calcualte the gross profit to be eliminated

for this amount, the gross profit applied was to Prince from Kile

so we use Price mark up of 40%

sales x gross profit percentage = gross profit

70,000 x 40% = 28,000 gross profit for intra.entity transaction

This amount should be eliminated on the consolidation process-