When Comparing the Difference Between an Upstream and Downstream Transfer

question 104

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

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Definitions:

Adjusted Subsidiary Value

An evaluation metric that adjusts the value of a subsidiary’s assets and liabilities to their fair market value.

Investment Account

An account held at a financial institution into which individuals deposit funds for the purpose of buying securities and other investment assets.

New Shares

Additional shares of stock issued by a company to raise capital or in connection with a stock split.

Noncontrolling Interest

A minority stake in a company that is not enough to exert control over its operations, often less than 50% of the voting shares.