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Inventory profits

How do unrealized intercompany inventory profits from a prior period affect the computation of consolidated net income when the inventory is resold in the current period? Is it important to know if the sale was upstream or downstream? Why or why not? Explain.

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Unrealized inter-company inventory profits are deferred until the inventory is sold to outside of the consolidated group. This is usually in the period following the deferred gross profit entry and so unrealized profits from a prior period usually result in the ...

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