Inventory Sales
Herb Corporation holds 60 percent ownership of Spice Company. Each year, Spice purchases large quantities of a gnarl root used in producing health drinks. Spice purchased $150,000 of roots in 20X7 and sold $40,000 of these purchases to Herb for $60,000. By the end of 20X7, Herb had resold all but $15,000 of its purchase from Spice. Herb generated $90,000 on the sale of roots to various health stores during the year.
Required
a. Give the journal entries recorded by Herb and Spice during 20X7 relating to the initial purchase, intercorporate sale, and resale of gnarl roots.
b. Give the worksheet elimination entries needed as of December 31, 20X7, to remove all effects of the intercompany transfer in preparing the 20X7 consolidated financial statements.