Question

1. A parent sells merchandise to its 90%-owned subsidiary at a markup of 20% on cost. The parent's beginning inventory includes $120,000 purchased from the subsidiary. The parent's ending inventory includes $156,000 purchased from the subsidiary. What is the impact of the above information on noncontrolling interest in net income, reported on the consolidated income statement for the year? A. No effect B. Subtract $3,000 C. Subtract $600 D. Subtract $6,000

Answer 1

$6000

Step-by-step explanation:

Since the inventory has increased in the books of subsidiary and that has been purchased from parent company, at the profit made by the parent company, so profit has to be eliminated.

= Increase in inventory / (1+20%)

= (156000-120000)/(1+20%)

= $ 6000