Eagle, Inc. owns 80% of the outstanding stock of Shadow, Inc. and uses the simple equity method to account for this investment.

At the beginning of 20x1, Eagle held merchandise that the company had acquired from Shadow for $60,000.
During 20x1, Eagle bought additional goods from its subsidiary for $1,000,000.
At December 31, 20x1, $100,000 of these 20x1 purchases remained in Eagle’s inventory.

Shadow Inc. earns a gross profit of 25% on all sales to its parent.

Which of the following must the consolidated entity include in the entry it uses to adjust its accounts for the intercompany profit included in Eagle’s beginning inventory?

Select One or More of the Choices

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