Help: F&R Reading 18 Example 6

[hali99]

Question 1: Asks about the Equity Income for Jones (Parent) to report. I understand most of the stuff except why the $16000 of unrealized profit sitting in Jasons inventory is multiplied by 25% to find Jones share.
Shouldn’t Jones recognize the full $16000 unrealized profit because its a down stream transaction and there isnt any NCI?
When I took this couse at my university, in a downstream transaction ,we always reported full revenue amount even if Parents owned 25% of the subsidiary.
Thank you

 

[40yoCFAcandidate]

There is an earlier thread on this same question. In this case, Jones is selliing inventory, so it cannot fully recognize the sale until the inventory is sold by its affiliate. This is inventory specific, If Jones were selling advertising services, or consulting services, or something other than inventory then they would not have to make any adjustment. The sale woudl be considered complete. This may be the type of transaction you are thinking of from your university.