Reference no: EM133013953

Question - Parent owns 80% of its subsidiary. During the year, parent sold $10,000 of inventory to its subsidiary. Half of this inventory remained in subsidiary's warehouse at year end. During the year, the subsidiary sold $5,000 inventory to its parent. Forty percent of this inventory remained in parent's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 20% for both companies. Unless otherwise stated, assume parent uses the cost method to account for its Investment in Subsidiary. Assume that subsidiary reported an after-tax net income of $20,000 in 2020, what would be subsidiary's adjusted net income for the year?

a. $19,840

b. $19,760

c. $19,600

d. $20,400

e. $20,000