Question

Flax Co. acquired 80% percent of the voting common stock of Levinson Corp. on January 1, 2021. During the year, Flax made sales of inventory to Levinson. The inventory cost Flax $275,000 and was sold to Levinson for $420,000. Levinson held $84,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2021, is: Multiple Choice $23,200. $67,200. $145,000. $116,000. $29,000.

Answer 1

$29,000

Step-by-step explanation:

Calculation to determine what The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2021, is:

Intra-Entity Gross Profit= ($84,000 ÷ $420,000) *20%

Intra-Entity Gross Profit= ($84,000 ÷ $420,000) *20%

Intra-Entity Gross Profit = $29,000