Parent made the decision to purchase 100% of Sub to capture a specific production capability for parts needed in Parent’s continuous production processes and to protect the process from competitors.

All purchases from Sub are on account with 75% of the billings remitted in the year of purchase and 25% remitted in the following year. During the years 2019-2021, the inventory transactions were as follows:

Year	Cost to Sub	Transfer Price to Parent	Gross Profit Rate	Inventory Transferred & Remaining in Ending Inventory
2019	$100	$140	28.6%	$20
2020	100	150	33.3%	30
2021	120	160	25%	36

Any parts in ending inventory at year-end are the first parts put into production in the new year.

1. a. Prepare Parent’s journal entry to record the purchase of inventory from Sub in 2021.

1. b. Prepare Sub’s journal entry to record the sale of inventory to Parent in 2021.
2. c. Show the computation of the gross profit to be deferred/recognized in the ending inventory resulting from the intercompany transfer of inventory.