Question

1. An 80%-owned subsidiary sells land to its parent at a gain of $100,000. The following year, the parent sells the land to an outside entity for a gain of $10,000. How is the noncontrolling interest in net income affected in the year the parent sells the land? A. No effect B. Increase of $20,000 C. Decrease of $2,000 D. Decrease of $22,000

Answer 1

Answer:

The answer is ""D

Decrease of $22,000

Explanation:

Parents and subsidiary may sell non-current asset  s to each other, resulting i n a profit  being recorded in the selling ent ity's financial statements.

If  these non- current assets are still held by  the purchasing  entity at the y ear-end, the  profit is unrealised from the gr oup’s perspective and should be  removed.

The NCI calculation would include an adjustment to  reduce the subsidiary's profit by $100,000 to eliminate the profit on  disposal of the intra-group transfer.

The NCI would be decreased by $100,000*20% = $20,000 and the gain on disposal $10,000*20% = $2,000

The NCI would be decreased by = $20,000 + $2,000 = $22,000