A parent uses the initial value method, sells inventory to the subsidiary, and intra-entity gross profits exist in beginning inventory. What is the effect of Consolidation Entry

The cost of goods sold and the retained earnings of the subsidiary decreases.

Explanation:

Subsidiary simply means when an entity is owned by another entity which can either be fully or partly owned. depending on its ownership shares.

It should be noted that cash basis is being used in the recognition of inform in the initial value method and that when an investment in a subsidiary is to be accounted for, such investments will remain at the initial value.

Regarding the scenario in the question, when the initial value method is used by the parent company, the cost of goods sthst are sold and the retained earnings of the subsidiary would decrease.

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