Which of the Following Statements Is True Regarding Inventory Transfers

question 54

Multiple Choice

Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method?

• A) The sale of merchandise between a parent and its subsidiary represents an arm's-length transaction and thus provides the basis for the recognition of profit on such transfers.
• B) Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is inappropriate because all the intra-entity transactions unsold at year-end may not be sold in the next year.
• C) Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intra-entity transactions unsold at year-end may not be sold in the next year.
• D) Merchandise transfers from a parent to its subsidiary that have not been sold to unaffiliated parties should be included in consolidated inventory at their transfer price.
• E) Non-controlling interest in subsidiary's net income should not be reduced for upstream or downstream ending inventory profits.

Calculate the total manufacturing costs charged to units transferred to finished goods.

Determine the conversion costs per unit for processes with no beginning work in process inventory.

Identify the effects of materials and conversion costs on the total cost assigned to inventory.

Understand the methodology for accounting for physical units in process cost systems.

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Definitions:

Unemployment Rate

The proportion of job-seekers in the labor force who do not currently hold employment.

Labor Force

The total number of people who are eligible to work, including both the employed and those seeking employment.

Unemployed Category

A classification for individuals who are able and willing to work but are unable to find employment.

Unemployment Rate

The rate of unemployment among those actively seeking work within the labor force.