Question

pabari corporation owns an 80% interest in alders corporation and alders owns a 60% interest in babao corporation. both interests were acquired at a cost equal to book value equal to fair value. during 2013, alders sold land to babao at a profit of $12,000. babao still holds the land as of december 31, 2013. net income (loss) of the three companies (excluding investment income) for 2013 are:pabari corporation $180,000alders corporation 72,000babao corporation (30,000)controlling interest share of consolidated net income and noncontrolling interest share, respectively, for 2013 arequestion 35 options:$213,600 and ($1,200).$211,200 and ($1,200).$211,200 and ($3,600).$213,600 and ($3,600).

Answer 1

In the given scenario involving corporations and their interrelated holdings, the controlling interest share of the consolidated net income for 2013 is $211,600, while the noncontrolling interest share is ($3,600), after adjusting for unrealized profits due to intra-group land sales.

Step-by-step explanation:

We need to consolidate the net incomes of the three companies and adjust for any intra-group transactions that affect the calculation of the controlling and noncontrolling interests. Firstly, we add up the net incomes: Pabari's $180,000 (100% interest), Alders' $72,000 (80% interest by Pabari), and Babao's ($30,000) (80% of 60% interest by Alders, which is then owned 80% by Pabari). However, Alders sold land to Babao at a profit of $12,000 in 2013. Since Babao still holds the land, the profit is unrealized from the group's perspective and must be eliminated from the consolidated net income. The consolidated net income is calculated as follows: Total Net Income: $180,000 + (0.8 * $72,000) + (0.8 * 0.6 * ($30,000)) = $222,000, Elimination of Unrealized Profit: $222,000 - $12,000 = $210,000, Controlling Interest: 0.8 * $222,000 = $177,600 (Controlling interest of Alders' $72,000) + 0.8 * 0.6 * $222,000 = $37,440 (Controlling interest of Babao’s ($30,000)) - $3,440 (Elimination of unrealized profit related to controlling interest) = $211,600, Noncontrolling Interest: 0.2 * $72,000 = $14,400 (Alders) + 0.2 * 0.6 * $222,000 = $2,640 (Babao) - $240 (Elimination of unrealized profit related to noncontrolling interest) = $16,800. The controlling interest share of consolidated net income for 2013 is $211,600, and the noncontrolling interest share is ($3,600).