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Tiberend, Inc., sold $165,000 in inventory to Schilling Company during 2017 for $250,000. Schilling resold $110,000...

Tiberend, Inc., sold $165,000 in inventory to Schilling Company during 2017 for $250,000. Schilling resold $110,000 of this merchandise in 2017 with the remainder to be disposed of during 2018. Assuming that Tiberend owns 30 percent of Schilling and applies the equity method, what journal entry is recorded at the end of 2017 to defer the intra-entity gross profit? (

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Answer #1

Answer:

S.no

Account title and explanation

Debit

Credit

Investment Income

$14,280

To Investment in Schilling

$14,280

(Entry to record intra entry gross profit)

Working:

Gross profit = $250,000-$165,000 =$85,000

Gross profit rate = (Gross profit/Sales)*100

=($85,000/$250,000)*100 =34%

Computation of unrealized gross profit using the equity method:

Unrealized gross profit =(Inventory sold to S company – inventory sold to other company*Gross profit rate)*Share of Ownership

=($250,000 - $110,000*34%)*30%

=$14,280 Intra-entity unrealized deferred gain

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