Perez, Inc., applies the equity method for its $25$ percent investment in Senior, Inc. During $2015,$ Perez sold goods with a $40$ percent gross profit to Senior. Senior sold all of these goods in $2015,$ How should Perez report the effect of the intra$-$equity sale on its $2015$ income statement?$$

Group of answer choices

Sales and cost of goods sold should be reduced by the amount of intra$-$entity sales.

Sales and cost of goods sold should be reduced by $25$ percent of the amount of intra$-$entity sales.

Investment income should be reduced by $25$ percent of the gross profit on the amount of Intra$-$entity sales.

No adjustment is necessary.