When Comparing the Difference Between an Upstream and Downstream Transfer

question 38

Multiple Choice

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

• A) Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers.
• B) Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers.
• C) Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest.
• D) Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest.
• E) Income from subsidiary will be the same for upstream and downstream profits.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income and the degree to which a company can increase operating income by increasing revenue.

Break-Even Point

The point at which total costs match total earnings from production or sales, leading to neither a profit nor a loss.

Maintenance Costs

The expenses incurred to keep an asset in working condition or restore it to proper operation.

Least-Squares Regression

A statistical method used to determine the line of best fit by minimizing the sum of the squares of the differences between observed values and those predicted by a linear function.