Homework Help is Here – Start Your Trial Now!
Business
Accounting
S Corporation, an 80%-owned subsidiary of P Corporation, sold inventory items to its parent at a $48,000 profit in 2014. P resold one-third of this inventory to outside entities. S reported net income of $200,000 for 2014. Noncontrolling interest share of consolidated net income that will appear in the income statement for 2014 is Select one: a. $32,000 b. $33,600 c. $40,000 d. $30,400

S Corporation, an 80%-owned subsidiary of P Corporation, sold inventory items to its parent at a $48,000 profit in 2014. P resold one-third of this inventory to outside entities. S reported net income of $200,000 for 2014. Noncontrolling interest share of consolidated net income that will appear in the income statement for 2014 is Select one: a. $32,000 b. $33,600 c. $40,000 d. $30,400

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
### Consolidated Net Income Calculation: Noncontrolling Interest Share **Scenario:** S Corporation, an 80%-owned subsidiary of P Corporation, sold inventory items to its parent at a $48,000 profit in 2014. P resold one-third of this inventory to outside entities. S reported net income of $200,000 for 2014. You need to determine the noncontrolling interest share of consolidated net income that will appear in the income statement for 2014. **Options:** - a. $32,000 - b. $33,600 - c. $40,000 - d. $30,400 **Explanation:** To calculate the noncontrolling interest, you need to consider both the ownership percentage and how profits or losses from the sale of inventory affect the consolidated net income. Here's a detailed breakdown: 1. **Ownership Percentage:** - S Corporation is 80% owned by P Corporation, which means the noncontrolling interest is 20%. 2. **Profit Calculation:** - S Corporation made a $48,000 profit from selling inventory to P Corporation. - P Corporation resold one-third of this inventory to outside entities, which helps release part of the internal profit. - The released profit is \( \frac{1}{3} \times \$48,000 = \$16,000 \). 3. **Remaining Profit:** - The remaining profit still held within the inventory is \( \$48,000 - \$16,000 = \$32,000 \). 4. **Adjusted Net Income for S Corporation:** - Initial net income reported by S is $200,000. - Subtract the unrealized profit held within the inventory: \( \$200,000 - \$32,000 = \$168,000 \). 5. **Noncontrolling Interest:** - Noncontrolling interest is 20% of adjusted net income. - Noncontrolling interest share = 20% of $168,000 = \( 0.20 \times 168,000 = \$33,600 \). **Answer:** - The correct option is **b. $33,600**. Make sure to review the principles of consolidated financial statements and intercompany profits to fully understand how this calculation was derived.
Transcribed Image Text:### Consolidated Net Income Calculation: Noncontrolling Interest Share **Scenario:** S Corporation, an 80%-owned subsidiary of P Corporation, sold inventory items to its parent at a $48,000 profit in 2014. P resold one-third of this inventory to outside entities. S reported net income of $200,000 for 2014. You need to determine the noncontrolling interest share of consolidated net income that will appear in the income statement for 2014. **Options:** - a. $32,000 - b. $33,600 - c. $40,000 - d. $30,400 **Explanation:** To calculate the noncontrolling interest, you need to consider both the ownership percentage and how profits or losses from the sale of inventory affect the consolidated net income. Here's a detailed breakdown: 1. **Ownership Percentage:** - S Corporation is 80% owned by P Corporation, which means the noncontrolling interest is 20%. 2. **Profit Calculation:** - S Corporation made a $48,000 profit from selling inventory to P Corporation. - P Corporation resold one-third of this inventory to outside entities, which helps release part of the internal profit. - The released profit is \( \frac{1}{3} \times \$48,000 = \$16,000 \). 3. **Remaining Profit:** - The remaining profit still held within the inventory is \( \$48,000 - \$16,000 = \$32,000 \). 4. **Adjusted Net Income for S Corporation:** - Initial net income reported by S is $200,000. - Subtract the unrealized profit held within the inventory: \( \$200,000 - \$32,000 = \$168,000 \). 5. **Noncontrolling Interest:** - Noncontrolling interest is 20% of adjusted net income. - Noncontrolling interest share = 20% of $168,000 = \( 0.20 \times 168,000 = \$33,600 \). **Answer:** - The correct option is **b. $33,600**. Make sure to review the principles of consolidated financial statements and intercompany profits to fully understand how this calculation was derived.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting for Liquidation of Companies
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS