Question

A parent transfers inventory with a cost of $25,000 to its subsidiary at a transfer price of $40,000. The subsidiary resold 50% of this transferred inventory to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G

Answer 1

Answer: $7,500

Explanation:

The profit made from the transfer is;

= 40,000 - 25,000

= $15,000

The subsidiary however only managed to resell 50% of this. The Consolidated entry therefore will show that 50% of the inventory remains so profit will have to be deferred till it is sold. The amount deferred is;

= 15,000 * 50%

= $7,500