A parent owns 80% of its subsidiary. The subsidiary sells merchandise to its parent at a 25% markup on cost. The parent's ending inventory includes $825,000 purchased from the subsidiary. The parent's beginning inventory includes $750,000 purchased from the subsidiary. What is the effect of the above on the noncontrolling interest in net income for the current year?

Question

Quizplus · Accepted Answer

Ending inventory profit = $825,000 - ($825,000/1.25) = $165,000 unconfirmed
Beginning inventory profit = $750,000 - ($750,000/1.25) = $150,000 confirmed
($150,000 - $165,000) x 20% = $3,000 decrease.

A Parent Owns 80% of Its Subsidiary