P Company Owns an 80% Interest in S Company

question 7

Multiple Choice

P Company owns an 80% interest in S Company. During 2017, S sells merchandise to P for $200,000 at a profit of $40,000. On December 31, 2017, 50% of this merchandise is included in P's inventory. Income statements for P and S are summarized below: Controlling interest in consolidated net income for 2017 is:

• A) $300,000.
• B) $380,000.
• C) $396,000.
• D) $420,000.

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Definitions:

Direct Method

A way of presenting a cash flow statement where actual cash flows from operating activities are disclosed directly.

IFRS

International Financial Reporting Standards, a set of accounting rules and standards that dictate how financial statements should be reported and are recognized globally.

GAAP

Stands for Generally Accepted Accounting Principles, a standard framework of guidelines for financial accounting.

Operating Cash Flows

The cash generated from the core business activities of a company in a given period, as opposed to cash flows from investing or financing activities.