Morneau Company, a 100% owned subsidiary of Robertson Corporation, sells invento

Question

Morneau Company, a 100% owned subsidiary of Robertson Corporation, sells inventory to Robertson at a 30% profit on selling price. The following data are available pertaining to inter-company purchases by Robertson:

Inter-company sales:

Unsold at year end (based on selling price):

2016:

$17,600

2016:

$3,200

2017:

$24,300

2017:

$5,700

2018:

$27,000

2018:

$4,800

Morneau’s profit numbers were $113,000, $204,000 and $225,600 for 2016, 2017, and 2018, respectively. Robertson received dividends from Morneau of $21,000 for 2016 and 2017, and $25,000 for 2018.

Assume Morneau uses the cost method to account for its investment in Robertson. What is the balance in the pre-consolidation Income (loss) from subsidiary account for 2018?

Select one:

A. 25,000

B. 225,870

C. 25,270

D. 226,600

Inter-company sales:

Unsold at year end (based on selling price):

Explanation / Answer

Option B is correct, that is 225870

Particulars Amount ($) Profit 225600 Less: unsold inventory at the year end 1440 Add: unsold inventory at beginning 1710 Pre consolidation Income / ( Loss) from subsisiary 2018 225870

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