Question

On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $672,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $288,000 and Rockne's assets and liabilities had a collective net fair value of $960,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports a net income of $370,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $430,000 in 2017 and $530,000 in 2018. Approximately 40 percent of the inventory purchased during any one year is not used until the following year.a. What is the non-controlling interest's share of Rockne's 2018 income?b. Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

Answer 1

The non-controlling interest's share of Rockne's 2018 income is $111,000, calculated as 30% of Rockne's net income. To prepare Doone's 2018 consolidation entries, the intra-entity inventory profits need to be removed by adjusting the inventory values and cost of goods sold.

Step-by-step explanation:

The student is dealing with an accounting scenario where consolidation and non-controlling interest calculations are involved, typically in an advanced accounting or business degree course.

a. Non-controlling interest's share of Rockne's 2018 income

The non-controlling interest's share is calculated based on the percentage of the company they own. In this case, non-controllers own 30% of Rockne. The formula to calculate their share of the net income would be:

Net income × Non-controlling interest percentage = Non-controlling interest's share

Rockne's net income for 2018 is $370,000, so:

$370,000 × 30% = $111,000

b. Doone's 2018 consolidation entries

• To prepare Doone's consolidation entries for the intra-entity inventory transfers, we need to:
• Determine the inventory sold above cost from Rockne to Doone: $530,000 × 25% markup.
• Calculate the amount of 2018 inventory still on hand by the end of the year: $530,000 × 40%.

1. Adjust the beginning inventory to remove the markup from 2017's ending inventory that was sold in 2018.

To remove the excess markup from 2018's ending inventory, Doone must credit Inventory and debit Cost of Goods Sold (COGS) or an Inventory Profit Elimination account for the markup amount.

Answer 2

Question a:

The non-controlling interest of Rockne´s 2018 net income is $111,000.- calculated by taking 30% of Rockne´s net income of $370,000.-

Question B:

There are 3 entries required to eliminate te sale of goods form rochne to doone.

The first entry eliminates the sales recorded by rockne against te inventory or cost of goods sold by recorded by doone. To consider, the 60% of the purchases went trhough cost of good sol d and 40% of the purchases remain in inventory until the following year. Here is the engru:

Debit/sales/$530

Credit/COGS/ ($318) 60%

Credit inventory ($212) 40%

The next entry has to do with the amount of inventory that remained from the last intercompany transaction. This is caclulated usin 40% of 2017 sales, which were $430. So:

Debit inventory $172

Credit Cogs ($172)

The last part is to eliminate the recievable on the book of rockne when they made te sale

Debit Payable $530

Credit receivable ($530)