1. Sub was an 80 percent-owned subsidiary of Pub Corporation throughout the 2019–2021period. Pub’s separate income (excludes income from Sub) was $7,200,000, $6,600,000, and$7,500,000 in 2019, 2020, and 2021, respectively. Pub acquired its interest in Sub at itsunderlying book value, which was equal to fair value on July 1, 2017.2. Pub sold inventory items to Sub during 2019 at a gross profit to Pub of $720,000. Half themerchandise remained in Sub’s inventory at December 31, 2019. Total sales by Pub to Sub in2019 were $1,800,000. The remaining merchandise was sold by Sub in 2020.3. Pub’s inventory at December 31, 2020, included items acquired from Sub on which Submade a profit of $410,000. Total sales by Sub to Pub during 2020 were $1,600,000.4. There were no unrealized profits in the December 31, 2021 inventories of either Sub orPub.5. Pub uses the equity method of accounting for its investment in Sub. . By reference to the data in the problem set, discuss the meanings of upstream sales anddownstream sales and their relevance in computing parent and consolidated net income.
1. Sub was an 80 percent-owned subsidiary of Pub Corporation throughout the 2019–2021
period. Pub’s separate income (excludes income from Sub) was $7,200,000, $6,600,000, and
$7,500,000 in 2019, 2020, and 2021, respectively. Pub acquired its interest in Sub at its
underlying book value, which was equal to fair value on July 1, 2017.
2. Pub sold inventory items to Sub during 2019 at a gross profit to Pub of $720,000. Half the
merchandise remained in Sub’s inventory at December 31, 2019. Total sales by Pub to Sub in
2019 were $1,800,000. The remaining merchandise was sold by Sub in 2020.
3. Pub’s inventory at December 31, 2020, included items acquired from Sub on which Sub
made a profit of $410,000. Total sales by Sub to Pub during 2020 were $1,600,000.
4. There were no unrealized profits in the December 31, 2021 inventories of either Sub or
Pub.
5. Pub uses the equity method of accounting for its investment in Sub. . By reference to the data in the problem set, discuss the meanings of upstream sales and
downstream sales and their relevance in computing parent and consolidated net income.
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