King Corp. owns 85% of James Co. King uses the equity method to account for this investment. During 2009, King sells inventory to James for $500,000. The inventory originally cost King $420,000. At 12/31/09, 25% of the goods were still in James' inventory.

-Prepare the consolidation Entry TI and Consolidation Entry G for the consolidation worksheet

I will not show you the entries but will tell you how to solve it.
1. Calculate unrealised profit [URP] (Sale value - cost)
2. Multiply the URP with the percent of inventory
3. Reduce inventory of James and retained earning of King with the URP

I still don't understand... I calculated that with the numbers, and derived at 20,000. Would these journal entries be correct?

Entry TI

dr. Sales... 500,000
Cr. Cost of goods sold... 500,000


Entry G

dr. Cost of goods sold... 20,000
Cr. Inventory... 20,000

I suggested entries for consolidated balance sheet. The answer will be different if you need to consolidate income statemnts of parent and subsidiary.

Entry G is correct, the dr cost of sales entry eventually will reduce your profit element for those inventory still parked under James' inventory.