Question

Angela, Inc., holds a 90 percent interest in Corby Company. During 2020, Corby sold inventory costing $108,800 to Angela for $128,000. Of this inventory, $55,400 worth was not sold to outsiders until 2021. During 2021, Corby sold inventory costing $161,250 to Angela for $215,000. A total of $53,400 of this inventory was not sold to outsiders until 2022. In 2021, Angela reported separate net income of $216,000 while Corby's net income was $125,000 after excess amortizations. What is the noncontrolling interest in the 2021 income of the subsidiary

Answer 1

See below

Step-by-step explanation:

First, we need to calculate the gross profit, which will be;

= $128,000 - $108,800

= $19,200

Then, the gross profit rate would be;

= Gross profit / Sales × 100

= ($19,200 / $128,000) × 100

= 15%

Unrealized profit on $55,400 will be

= 15% × $55,400

= $8,310

The unrealized profit for 2021 would be

= $215,000 - $161,250

= $53,750

Then, the gross profit rate would be

= (Gross profit / Sales) × 100

= ($53,750 / $215,000) / × 100

= 25%

Unrealized profit on $53,400 would be;

= 25% × $53,400

= $13,350

The non controlling interest in the 2021 income of the subsidiary will be

Income of Corby company = $125,000

Add: deferral of unrealized gross profit = $8,310

Less: unrealized profit on current year = ($13,350)

Adjusted income = $119,960

Non controlling interest at 10% would be;

= 10% × $119,960

= $11,996