A parent has a 60% interest in its subsidiary. Ending inventory profits on upstream merchandise sales:

Question

Quizplus · Accepted Answer

Ending inventory profits on upstream merchandise sales (from the subsidiary to the parent) require adjustments because the profit recognized by the subsidiary has not been realized from the group's perspective. This unrealized profit must be eliminated in consolidation. The elimination reduces both the parent's share of equity in net income (because the parent's income includes its share of the subsidiary's profits) and the noncontrolling interest's share of net income (because it reflects the total net income of the subsidiary, part of which includes the unrealized profit).

A Parent Has a 60% Interest in Its Subsidiary