2. Intercompany Sales. P Company acquired 70 percent ownership of S Company\'s v

Question

2. Intercompany Sales. P Company acquired 70 percent ownership of S Company's voting shares. On January 1 20x2. During 20X5, P purchased inventory for $29,000 and sold the full amount to S for $90,000. On December 31, 20X5, S's ending inventory included $7,800 of items purchased from P Also during 20X5, S purchased inventory for S52.000 and sold the units to P for $82.000. P included $20.500 of its purchase from S in ending inventory on December 31,20X5. P reported income of S111,500 during the year including Income from S, and S reported income of $91,000. Reported 20X2 sales revenue and CGS amounts are as follows: P Company $358,050 S Company $240,000 149,000 Sales 248.,0000 CGS The Income to NC Interest is: a. $24.200 b. $24,450 c. $25,050 d. $26,700 e. None of the above

Explanation / Answer

Option-C Particulars Amount $ Net income reported by S Company 91,000.00 Adjustment: Add/(less)-Upstream transaction Unrealised profit on inventory held by S which was bought from P (82000-52000)*20500/82000     7,500.00 Revised net income of S Company 83,500.00 Share of P company @ 70%-83500*70% 58,450.00 Share of NC Interest @ 30%-83500*30% 25,050.00 Note: In the question, two transactions were given Upstream transaction-Sale by subsidiary (S) to Parent (P) Downstream transaction-Sale by Parent to (P) to Subsidiary(S) And both P & S are holding the inventory from the above sale transactions which have got unrealized profit in case of consolidation However to arrive at NC Interest we need to consider only unrealised profit in S books i.e upstream transaction Accordingly downstream transaction was not considered in the above calculation

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.