Question

1. A parent owns 80% of its subsidiary's voting stock. At the end of the year, the parent's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the subsidiary. The subsidiary's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the parent. What is the effect of the above information on noncontrolling interest in net income for the year, reported on the consolidated income statement? A. Decrease of $1,200 B. Decrease of $4,000 C. Increase of $4,000 D. Increase of $2,800

Answer 1

The effect of the information provided on noncontrolling interest in net income for the year reported on the consolidated income statement is an increase of $2,800.

Step-by-step explanation:

The effect of the information provided on noncontrolling interest in net income for the year reported on the consolidated income statement is an increase of $2,800. The unconfirmed profit on merchandise purchased from the subsidiary is added to the parent's ending inventory, increasing net income. Similarly, the unconfirmed profit on merchandise purchased from the parent is added to the subsidiary's ending inventory, also increasing net income. As a result, the noncontrolling interest in net income increases by the total unconfirmed profit of $4,000 (20,000 - 14,000 + 50,000 - 30,000).

Answer 2

B decrease of $4000

Step-by-step explanation:

$2000 x 0.2%