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A parent sells merchandise to its 90%-owned subsidiary at a markup of 20% on cost. The...

  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.

 Subtract $6,000

B.

Subtract $3,000

C.

Subtract $600

D.

No effect
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Answer #1

The correct answer is

A) Subtract $ 6000

Explanation

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

= Increase in inventory / (1+20%)

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

= $ 6000

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