Pre-consolidation bookkeeping, downstream intercompany sales, profits in ending inventory-Equity method Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parents 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 $4,000,000 $2,500,000 (2,800,000) (1,500,000) 1,200,000 1,000,000 (780,000) (606,000) $420,000 $394,000 Revenues Cost of goods sold Gross profit Selling general & administrative expenses (780,000) Net income 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 that during the year ended December 31, 2019, the parent sold to the subsidiary $500,000 of merchandise. At December 31, 2019, the subsidiary still held in its inventory 25% of the goods purchased from the parent during 2019. What is the amount of "income from subsidiary" recognized by the parent company if it applies the equity method of pre-consolidation investment bookkeeping? O$356,500 O$394,000 O$420,000 O$431,500
Pre-consolidation bookkeeping, downstream intercompany sales, profits in ending inventory-Equity method Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parents 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 $4,000,000 $2,500,000 (2,800,000) (1,500,000) 1,200,000 1,000,000 (780,000) (606,000) $420,000 $394,000 Revenues Cost of goods sold Gross profit Selling general & administrative expenses (780,000) Net income 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 that during the year ended December 31, 2019, the parent sold to the subsidiary $500,000 of merchandise. At December 31, 2019, the subsidiary still held in its inventory 25% of the goods purchased from the parent during 2019. What is the amount of "income from subsidiary" recognized by the parent company if it applies the equity method of pre-consolidation investment bookkeeping? O$356,500 O$394,000 O$420,000 O$431,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pre-consolidation bookkeeping, downstream intercompany sales, profits in ending inventory-Equity 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:
Revenues
Cost of goods sold
Gross profit
Selling general & administrative expenses
Net income
Parent Subsidiary
$4,000,000 $2,500,000
(2,800,000) (1,500,000)
1,200,000 1,000,000
(780,000) (606,000)
$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 that during the year ended December 31, 2019, the parent sold to the subsidiary $500,000 of merchandise. At December 31, 2019, the subsidiary still held in its inventory 25% of the goods
purchased from the parent during 2019. What is the amount of "income from subsidiary" recognized by the parent company if it applies the equity method of pre-consolidation investment bookkeeping?
O$356,500
O$394,000
O$420,000
O$431,500
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