An 80%-owned subsidiary sells merchandise to its parent at a markup of 25% on cost. During the current year, the parent paid $725,000 for merchandise received from the subsidiary. By year-end, the parent has sold $600,000 of the merchandise to outside customers for $900,000, but still holds the other $125,000 in its ending inventory. What is the impact of the above information on noncontrolling interest in net income, reported on the consolidated income statement for the year?

Question

Quizplus · Accepted Answer

Unconfirmed profit on ending inventory is $125,000 - ($125,000/1.25) = $25,000; this is an upstream sale so ($25,000 x 20%) = $5,000 is subtracted from noncontrolling interest in net income.

An 80%-Owned Subsidiary Sells Merchandise to Its Parent at a Markup