On January 1, 20X8, Parent Company acquired 90% ownership of Subsidiary Corporation, at...

Question:

On January 1, 20X8, Parent Company acquired 90% ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest, at the date of acquisition, was equal to 10% of the book value of Subsidiary Corporation. On Mar 17, 20X8, Subsidiary purchased inventory from Parent, for $90,000. Subsidiary sold the entire inventory to an unaffiliated company, for $120,000, on November 21, 20X8. Parent had produced the inventory sold to Subsidiary, for $62,000. The companies had no other transactions during 20X8. Based on the information given, what amount of sales will be reported in the 20X8 consolidated income statement?

a. $62,000

b. $120,000

c. $90,000

d. $58,000

Investment in Subsidiary

Investment in subsidiary is accounted for using acquisition method. Comapnies entered into this kind of investment are not allowed to have transaction with each other such s buy and sell.

Answer and Explanation:

the amount of sales to be recorded in the consolidated income statement is $120,000 (B)

Only the sale to outsider or to unaffiliated company will be recorded.


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