Question

"Tiberend, Inc., sold $150,000 in inventory to Schilling Company during 2017 for $225,000. Schilling resold $105,000 of this merchandise in 2017 with the remainder to be disposed of during 2018. Assuming that Tiberend owns 25 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

Answer 1

Gross profit = = 33.33%

Unrealized gross profit = $10,000

Step-by-step explanation:

Given data:

Selling price of inventory = 225,000

Cost price of inventory = 150, 000

Inventory sold to other company = $105,000

To prepare the journal entry, the following is calculated

(a) Gross profit percentage:

Gross profit percentage is calculated using the formula

Gross profit = (selling price of inventory - cost price of inventory)/selling price of inventory * 100

Gross profit = {(225,000 - 150,000)/225,000] * 100

= (75,000/225,000) * 100

= 0.3333 * 100

= 33.33%

(b) Unrealized gross profit:

The unrealized gross profit is calculated using the formula;

Unrealized gross profit =

(Inventory sold to S -Inventory sold to others) * gross profit * shares own

Substituting, we have

Unrealized gross profit = (225,000 - 105,000) * 33.33% * 25%

=120,000 * 33.33% * 25%

= 120,000 * 0.3333 * 0.25

= $10,000 (approximately)

The journal entry is given as;

Date Description Debit Credit

2017 Income from investment $10,000

Investment in S company $10,000

(To record the unrealized gross profit)

Answer 2

$9900

Step-by-step explanation:

Given:

• Inventory value $150,000
• Revenue: $225,000
• Schilling resold: $105,000
• Tiberend owns 25 percent

We need to find the gross profit and its ratio.

The gross profit = Revenue - Inventory value

= $225,000 - $150,000 = $75,000

The gross profit ratio =
`(Gross profit)/(Revenue)` =
`(75,000)/(225,000)` =
`(1)/(3)` = 33.33%

Ending inventory with schilling resold

= Revenue - schilling resold

= $225,000 - $105,000 = $120,000

Total unrealized profit: $120,000*25% = $30,000

So, Intra entity unrealized gross profit is

= Total unrealized profit × Tiberend ownership intra entity unrealized gross profit is

= $30,000 × 33%

= $9900

Hope it will find you well.