A 90%-owned subsidiary sells merchandise to its parent 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?

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Quizplus · Accepted Answer

Confirmed profit on beginning inventory is $120,000 - ($120,000/1.2) = $20,000; unconfirmed profit on ending inventory is $156,000 - ($156,000/1.2) = $26,000. This is an upstream sale so ($26,000 - $20,000) x 10% = $600 is subtracted from noncontrolling interest in net income.

A 90%-Owned Subsidiary Sells Merchandise to Its Parent at a Markup