question archive Push Company owns 60% of Shove Company's outstanding common stock
Push Company owns 60% of Shove Company's outstanding common stock
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Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows:
Year |
Inventory Cost |
Transfer Price |
Inventory Remaining at Year End (at transfer price) |
| 20X1 | $80,000 | $100,000 | $30,000 |
| 20X2 | $110,000 | $130,000 | $26,000 |
Required information
Assume Push sold the inventory to Shove. Using the fully adjusted equity method, what journal entry would be recorded by Push to recognize the realization of the 20X1 deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to Shove?
| A. | Income from Shove Company | 2,000 | |
| Investment in Shove Company | 2,000 | ||
| B. | Income from Shove Company | 1,200 | |
| Investment in Shove Company | 1,200 | ||
| C. | Investment in Shove Company | 2,000 | |
| Income from Shove Company | 2,000 | ||
| D. | Investment in Shove Company | 1,200 | |
| Income from Shove Company | 1,200 |
Option A
Option B
Option C
Option D
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Answer:
Profit for the year 2011:
=Transfer Price-Inventory Cost
=100,000-80,000
=$20,000
Profit Rate on Transfer Price:
=(20,000100,000) *100
=20%
Unrealised Profit on unsold stock for the year 2011:
=$30,000*20%
=$6,000
Similarly for the year 2012:
Profit=130,000-110,000=20,000
Profit Rate= (20,000110,000)*100
=15.3846%
Unrealised profit on unsold stock for year 2012:
=26,000*15.3846%
=3999.999 = $4000
Difference in profits of two years
=6000-4000
=$2000
Since entry is to be passed for the realisation of profit for the year 2011,so Income will be credited.
and for the year 2012,unrealised profit has to b deffered,so Investemnt in shove company wil be debited.
ENTRY:
Investment in Shove co. 2000
Income from Shove co. 2000
