Perkins Company owns 85% of Sheraton Company. Perkins Company sells merchandise to Sheraton...
Question:
Perkins Company owns 85% of Sheraton Company. Perkins Company sells merchandise to Sheraton Company at 20% above cost (gross profit). During 2011 and 2012, such sales amounted to $400,000 and $500,000, respectively. At the end of each year, Sheraton Company had sold all of the inventory purchased from Perkins to third parties. Calculate the amount of unrealized inventory profit for 2011 and 2012.
a. $400,000 for 2011 and $500,000 for 2012
b. $80,000 for 2011 and $100,000 for 2012
c. $0 for 2011 and $100,000 for 2012
d. $80,000 for 2011 and $0 for 2012
e. $0 for 2011 and $0 for 2012
Parent Company
A parent company or corporation is the entity that presents the overall financial information of the group of entities that it controls as consolidated financial information. While preparing for the consolidation, the unearned profits and inter-entity transactions are eliminated.
Answer and Explanation: 1
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View this answere. $0 for 2011 and $0 for 2012 is the right option.
Explanation
If the parent entity sells or purchases the inventory to or from subsidiaries, then...
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