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Pre-consolidation bookkeeping, upstream interco

Pre-consolidation bookkeeping, upstream interco

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pre-consolidation bookkeeping, upstream intercompany sales, profits in ending inventory-Equity method Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2013, prior to any investment bookkeeping or intercompany adjustments: Revenues Cost of goods sold Gross profit Selling general & administrative expenses Net income Parent Subsidiary $4,200,000 $2,850,000 (2,730,000) (1,710,000) 1,470,000 1,140,000 (975,000) (757,500) $495,000 $382,500 On January 1, 2013, the neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. Assume that during the year ended December 31, 2013, the subsidiary sold to the parent $250,000 of merchandise. At December 31, 2013, the parent still held in its inventory 25% of the goods purchased from the subsidiary during 2013. What is the amount of "income from subsidiary" recognized by the parent company if it applies the equity method of pre-consolidation investment accounting? O$357,500 O$320,000 O$282,500 O$233,125
Transcribed Image Text:Pre-consolidation bookkeeping, upstream intercompany sales, profits in ending inventory-Equity method Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2013, prior to any investment bookkeeping or intercompany adjustments: Revenues Cost of goods sold Gross profit Selling general & administrative expenses Net income Parent Subsidiary $4,200,000 $2,850,000 (2,730,000) (1,710,000) 1,470,000 1,140,000 (975,000) (757,500) $495,000 $382,500 On January 1, 2013, the neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. Assume that during the year ended December 31, 2013, the subsidiary sold to the parent $250,000 of merchandise. At December 31, 2013, the parent still held in its inventory 25% of the goods purchased from the subsidiary during 2013. What is the amount of "income from subsidiary" recognized by the parent company if it applies the equity method of pre-consolidation investment accounting? O$357,500 O$320,000 O$282,500 O$233,125
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