Question

Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2017, Devin made frequent sales of inventory to Bauerly. There was deferred intra-entity gross profit of $40,000 in the beginning inventory and $25,000 of intra-entity gross profit at the end of the year. Devin reported net income of $137,000 for 2017. Bauerly decided to use the equity method to account for the investment. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what is the net income attributable to the noncontrolling interest for 2017

Answer 1

Answer:

$36,600

Explanation:

Calculation for the net income attributable to the noncontrolling interest for 2017

First step is to calculate the Intra-Entity Gain on Transfer That Is Deferred

Intra-Entity Gain on Transfer That Is Deferred=Sales Price $40,000 - BV $25,000 =

Intra-Entity Gain on Transfer That Is Deferred=$15,000

Second step is to calculate the Adjusted Subsidiary Net Income

Adjusted Subsidiary Net Income =Subsidiary's Net Income $ 137,000 - Deferred Intra-Entity Gain on Transfer $15,000

Adjusted Subsidiary Net Income =$122,000

Now let calculate the Noncontrolling Interest in Net Income

Noncontrolling Interest in Net Income = $122,000 × 30% Ownership Interest in Subsidiary

Noncontrolling Interest in Net Income = $36,600

Therefore the net income attributable to the noncontrolling interest for 2017 is $36,600