Question

Camille, Inc., sold $120,000 in inventory to Eckerle Company during 2020 for $200,000. Eckerle resold $85,000 of this merchandise in 2020 with the remainder to be disposed of during 2021. Assuming that Camille owns 30 percent of Eckerle and applies the equity method, what journal entry is recorded at the end of 2020 to defer the intra-entity gross profit? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

Answer 1

• The journal entry is given below:

Investment income Dr $13,800

      To Investment in Eckerle Company $13,800

(Being the intra -entity gross profit is recorded)

Here the investment income is debited and investment made in Eckerle company should be credited.

Working note:

= ($200,000 - $85,000)  × (($200,000 - $120,000) ÷ $200,000) × 30%

= $115,000 × 40% × 30%

= $13,800