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:

Completed-Contract Method

An accounting method used where revenue and profit are deferred until a contract is completed, particularly useful in long-term projects.

Percentage-Of-Completion Method

An accounting method used to recognize revenue and expenses of long-term contracts proportionally to the amount of work completed.

Extractive Industry

Industries involved in the extraction of natural resources from the earth, such as mining, drilling for oil, or logging.

Allowance Method

A method of accounting for bad debts that involves estimating and recording the amount of uncollectible accounts receivable.