Asked by Paige Taylor on Jun 24, 2024
Verified
Intercompany profits on sales of inventory are only realized:
A) once the seller receives payment for the sale.
B) once the inventory has been sold to outsiders.
C) when the inventory has been received by the purchaser.
D) when the inventory has been shipped to the purchaser.
Unrealized
Referring to profits or losses that have occurred on paper due to changes in the value of assets or investments but have not been actualized through a sale or transaction.
Intercompany Profits
Earnings generated from transactions between divisions or subsidiaries within the same corporation, which may be eliminated in consolidated financial statements.
Inventory
The items a business holds for the main purpose of resale or the raw materials used to produce goods for sale.
- Assess how intercompany inventory transactions affect the overall net income in consolidated accounts.
Verified Answer
HS
Hritik SachdevaJun 29, 2024
Final Answer :
B
Explanation :
Intercompany profits on sales of inventory are only realized when the inventory has been sold to outsiders or third-party customers. Until then, it is considered an internal transaction and any profits are unrealized. The receipt of payment, receipt of inventory by the purchaser, or the shipment of inventory to the purchaser do not affect the realization of intercompany profits on sales of inventory.
Learning Objectives
- Assess how intercompany inventory transactions affect the overall net income in consolidated accounts.