Parent Co. owns 80% of Sub Co. During the year, Sub Co. sold inventory to Parent Co. for $100,000. The inventory cost Sub Co. $60,000. At year-end, 40% of this inventory remains in Parent Co.'s warehouse. What amount of unrealized gross profit must be eliminated from the consolidated inventory balance?

Intercompany profit must be fully eliminated in consolidation. Total Profit = $40,000. Since 40% of the goods are still on hand, 40% of the profit is unrealized. $40,000 × 0.40 = $16,000. The fact that Parent owns only 80% does not change the amount of inventory elimination (though it affects how the elimination is allocated between NCI and Controlling Interest).