Pre-consolidation bookkeeping, upstream intercompany sales, profits in ending inventory - Cost method Assume 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, 2019, prior to any investment bookkeeping or intercompany adjustments: Parent Subsidiary Revenues $4,000,000 $2,500,000 Cost of goods sold (2,800,000) (1,500,000) Gross profit 1,200,000 1,000,000 Selling general & administrative expenses (780,000) (606,000) Net income $420,000 $394,000 On January 1, 2019, 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. The subsidiary declared and paid $200,000 of dividends during 2019. Assume during the year ended December 31, 2019, the subsidiary sold to the parent $400,000 of merchandise. At December 31, 2019, the parent still held in its inventory 25% of the goods purchased from the subsidiary during 2019. What is the amount of “income from subsidiary” recognized by the parent company if it applies the cost method of pre-consolidation investment bookkeeping? $160,000 $200,000 $354,000 $356,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Pre-consolidation bookkeeping, upstream intercompany sales, profits in ending inventory - Cost method Assume 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, 2019, prior to any investment bookkeeping or intercompany adjustments: Parent Subsidiary Revenues $4,000,000 $2,500,000 Cost of goods sold (2,800,000) (1,500,000) Gross profit 1,200,000 1,000,000 Selling general & administrative expenses (780,000) (606,000) Net income $420,000 $394,000 On January 1, 2019, 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. The subsidiary declared and paid $200,000 of dividends during 2019. Assume during the year ended December 31, 2019, the subsidiary sold to the parent $400,000 of merchandise. At December 31, 2019, the parent still held in its inventory 25% of the goods purchased from the subsidiary during 2019. What is the amount of “income from subsidiary” recognized by the parent company if it applies the cost method of pre-consolidation investment bookkeeping? $160,000 $200,000 $354,000 $356,500

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