Sub Company Sells All Its Output at 20 Percent Above

question 28

Multiple Choice

Sub Company sells all its output at 20 percent above cost to Par Corporation.Par purchases all its inventory from Sub.The incomes reported by the companies over the past three years are as follows:
Sub Company sold inventory for $300,000,$262,500 and $337,500 in the years 2006,2007,and 2008 respectively.Par Company reported ending inventory of $105,000,$157,500 and $180,000 for 2006,2007,and 2008 respectively.Par acquired 70 percent of the ownership of Sub on January 1,2006,at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company.

-Based on the information given above,what will be the income assigned to controlling interest for 2007?

• A)$448,375
• B)$495,000
• C)$486,250
• D)$615,375

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Definitions:

Production

The process of creating goods and services, involving tasks such as assembly, fabrication, and conversion of materials and resources.

Cost of Goods Manufactured

The total cost of producing goods during a specific accounting period, including labor, material, and overhead costs.

Job-Order Costing

An accounting method used to track costs and evaluate the profitability of individual jobs or batches, particularly useful in custom or unique production environments.

Direct Costs

Expenses that can be directly traced to the production of specific goods or services.