Question 1

Parent Co sold inventory to Subsidiary Co for $100,000 (Cost $60,000). At year-end, Subsidiary Co had sold 40% of this inventory to outside parties. What is the amount of unrealized gross profit to be eliminated in consolidation?

Accepted Answer

1. Calculate Total Intercompany Profit ($100k - $60k = $40k). 2. Determine % remaining in ending inventory (100% - 40% sold = 60%). 3. Multiply Profit by % Remaining.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Eliminating the realized profit; eliminating the full profit amount.

Parent Co sold inventory to Subsidiary Co for $100,000 (Cost $60,000). At year-end, Subsidiary Co had sold 40% of this inventory to outside parties. What is the amount of unrealized gross profit to be eliminated in consolidation?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 2

More questions from this exam