A parent owns 80% of its subsidiary's voting stock. At the end of the year, the subsidiary's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the parent. The parent's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the subsidiary. What is the effect of the above information on equity in net income for the year, reported on the parent's books, assuming the parent uses the complete equity method to account for its investment?

Question

Quizplus · Accepted Answer

($14,000 - $20,000) + [($30,000 - $50,000) x 80%] = $22,000 decrease

A Parent Owns 80% of Its Subsidiary's Voting Stock