Question

Charleston Inc. acquired 75% of Savannah Manufacturing on January 4, 2020. During 2020, Charleston sold Savannah $460,000 of goods, which had cost $380,000. Savannah still owned 20% of the goods at the end of the year. In 2021, Charleston sold goods with a cost of $520,000 to Savannah for $700,000, and Savannah still owned 15% of the goods at year-end. What amount of intra-entity gross profit should be deferred in 2021

Answer 1

Amount of profit to be deferred = $27,000

Step-by-step explanation:

The intra-entity gross profit that needs to be deferred can be calculated as follows:

In 2021:

The amount of price on goods sold = $700,000

The actual cost price = $520,000

Less: $180,000

Amount of profit to be deferred = Profit × percentage of goods at the year-end (2021)

Amount of profit to be deferred = $180,000 × 15%

Amount of profit to be deferred = $27,000