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:

Sales Discounts

Reductions in sales price offered to customers, typically to prompt early payment or bulk purchases.

Adjusting Entry

A journal entry made at the end of an accounting period to record any unrecognized income or expenses for that period, ensuring the accounts are up to date.

Gross Method

An accounting method for recording purchases at the full invoice price without deducting any cash discounts offered.

Sales Discounts

Reductions in the sale price given by a seller to a buyer, often used as an incentive for early payment or bulk purchasing.