Question
Computing the amount of investment income and preparing [I] consolidation entriesCost method Assume that a wholly owned subsidiary sells inventory to the parent company. The
Computing the amount of investment income and preparing [I] consolidation entriesCost method Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2018 and 2019:
| Subsidiary Net Income | Intercompany Inventory Sales | Gross Profit % | % Inventory Remaining at End of Year | Receivable (Payable) | |
|---|---|---|---|---|---|
| 2019 | $900,000 | $135,000 | 30% | 20% | $45,000 |
| 2018 | $720,000 | $108,000 | 35% | 15% | $36,000 |
Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $540,000 in dividends during 2019.
a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2019 assuming that it uses the cost method of accounting for its Equity Investment?
$Answer
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Hospitality Financial Accounting
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Agnes L.
2nd Edition
9780470598092, 470083603, 978-0470083604
