Question

Angela, |nc., hold a 90 percent interest in Corby Company. During 2012, Corby sold inventory costing $77,000 to Angelafor $110,000. Of this inventory, $40,000 worth was not sold to outsiders until 2013. During 2013, Corby sold inventorycosting $72,000 to Angela for $120,000. A total of $50,000 of this inventory was not sold to outsiders until 2014. In 2013,Angela reported net income of $150,000 while Corby earned $90,000 after excess amortizations. What is thenoncontrolling interest in the 2013 income of the subsidiary?a. $8,000.b. $8,200.c. $9,000d. $9,800.

Answer 1

b. $8,200

Step-by-step explanation:

Sales made in 2012

Corby to Angela = $77,000 goods for $110,000

Gross profit on sales = $33,000 on $110,000

Gross profit rate = 30%

Since not sold up to 2013 = $40,000

Unrealized profit = $40,000
`*` 30% = $12,000

Since not yet sold to third party this will not be the part of realized profit.

The income of Corby for 2013 = $90,000

Add: unrealized income, that is income not realized up to 2012 = $12,000

Total Income = $102,000

Less; Profit on Inventory sold in 2013, but not yet sold to third party

Gross profit = $120,000 - $72,000 = $48,000

Rate = $48,000/$120,000 = 40%

Gross profit that is unrealized = $50,000
`*` 40% = $20,000

Thus, profit for 2013 = $102,000 - $20,000 = $82,000

Non controlling interest = 10% = $82,000
`*` 10% = $8,200

Note: Under consolidation when there is sale in holding subsidiary of inventory then the profit is not recognized till the inventory is sold to third party not related to the holding or subsidiary.

Here, the inventory was transferred in 2012, but was not sold till 2013 to third party, after that it was sold thus, that is realized in 2013.

Further unsold inventory in books of Angela in 2013 = $50,000 and thus, profit on such inventory shall not be realized.