Question

Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of inventory to Gibson. The sales, which include a markup over cost of 25%, were $420,000 in 2017 and $500,000 in 2018. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2018. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest for 2018

Answer 1

$907,200

Step-by-step explanation:

Calculation for the net income attributable to the noncontrolling interest for 2018

First step is to calculate the Gross profit rate

Using this formula

Gross profit rate = gross profit + COGS = GPR/ (1-GPR)

Let plug in the formula

Gross profit rate= 25%/(1+25%) = 0.2

intra-entity gross profit = Transfer price x GPR (0.2)

Gross Profit 2017= $84,000 x 30%

Gross Profit 2017= $25,200;

Gross Profit 2018= 100,000 x 30%

Gross Profit 2017= $30,000

Now let calculate 2018 net income attributable to the noncontrolling interest Using this formula

2018 net income attributable to the noncontrolling interest =Subsidiary’s net income + Intra-entity Gross Profit in Ending Inventory for 2017 – Intra-entity grossprofit in 2018 inventory deferred x noncontrolling interest

2018 net income attributable to the noncontrolling interest = ($912,000) + ($25,200) – ($30,000) *10%

= $907,200

Therefore the net income attributable to the noncontrolling interest for 2018 is $907,200