P97 Schweser Q18 Help

CFA Level II FRA
#1

Question 18

Income Statement

Company C

COGS $7,000

Net Income $930

JVC

COGS $2,000

Net Income $200

Company C owns a 50% interest in JVC

Using equity method

Assuming consolidation, Company C’s cost of goods sold and net income for the year ended 2009 are closest to:

What is the right answer and why?

Thanks

#2

COGS of the condsolidation will be parent’s COGS plus subsidiary’s COGS: $7,000 + $2,000 = $9,000.

Net income will be parent’s net income: $930.

Under consolidation, every revenue and expense on the income statement is the sum of the corresponding accounts on the parent’s and subsidiary’s income statement.

Under consolidation, the net income will be the same as that of the parent.

#3

Thank you!!

#4

My pleasure.