Question

Which statement is true regarding intercompany sales of merchandise, when the subsidiary has a noncontrolling interest?...

Which statement is true regarding intercompany sales of merchandise, when the subsidiary has a noncontrolling interest?

A. If the parent sells merchandise to the subsidiary, the total gross margin on the sale must be eliminated in the consolidation working paper. B. If the subsidiary sells merchandise to the parent, the total gross margin on the sale must be eliminated in the consolidation working paper. C. If the subsidiary sells merchandise to the parent, the noncontrolling interest must be increased by its share of realized profits in the parent's beginning inventory. D. If the parent sells merchandise to the subsidiary, the noncontrolling interest must be reduced by its share of unrealized profits remaining in the subsidiary's ending inventory.

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Answer #1

Ans: If the subsidiary sells merchandise to the parent, the noncontrolling interest must be increased by its share of realized profits in the parent's beginning inventory. (option c)

When an upstream company sales take place, the non controlling interest is increased by subsidiary's share of realized profits in the beginning inventory of the parent company. Hence, option C is the correct choice.

All other options are false about inter company sale of merchandise. Hence, all other options are incorrect.

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