Powers Company owns an 80% interest in Smiley Company and a 90% interest in Toro Company.
During 2010 and 2011, intercompany sales of merchandise were made by all three companies.
Total sales amounted to $2,400,000 in 2010, and $2,700,000 in 2011. The companies sold their
merchandise at the following percentages above cost.
Powers 15%
Smiley 20%
Toro 25%
The amount of merchandise remaining in the 2011 beginning and ending inventories of the
companies from these intercompany sales is shown below.
Merchandise Remaining in Beginning Inventory
Powers Smiley Toro Total
Sold by
Powers $225,000 $189,000 $414,000
Smiley $180,000 216,000 396,000
Toro 180,000 135,000 315,000
Merchandise Remaining in Ending Inventory
Powers Smiley Toro Total
Sold by
Powers $207,000 $138,000 $345,000
Smiley $144,000 198,000 342,000
Toro 195,000 150,000 345,000
Reported net incomes (from independent operations including sales to affiliates) of Powers, Smiley,
and Toro for 2011 were $3,600,000, $1,500,000, and $2,400,000, respectively.
Required:
A. Calculate the amount noncontrolling interest to be deducted from consolidated income in the
consolidated income statement for 2011.
B. Calculate the controlling interest in consolidated net income for 2011.
.
| Smiley | Toro | |
| Reported subsidiary income | 1500000 | 24000000 |
| Add: Unrealized profit in beginning inventory |
66000 | 63000 |
| Less: Unrealized profit in ending inventory | -57000 | -69000 |
| Subsidiary income included in consolidated income | 1500000 | 2394000 |
| Noncontrolling interest ownership percentage | X2 | X 1 |
| Noncontrolling interest in consolidated income | 301800 | 234900 |
| Total noncontrolling interest:$301,800 + $239,400 = $541,200 |
| Particular | Amount in $ | Amount in $ |
| Power’s Company’s income independent operations | 3600000 | |
| Add: Unrealized profit considered realized in 2011 ($414,000 – $414,000/1.15) | 4000 | |
| Less: Unrealized profit in 2011 income ($345,000 – $345,000/1.15) | -45000 | |
| Power’s income realized in transactions with third parties | 3609000 | |
| Smiley Company’s Reported Net Income | 1500000 | |
| Add: Unrealized profit considered realized in 2011 ($396,000 – $396,000/1.2) | 66000 | |
| Less: Unrealized profit in 2011 income ($342,000 – $342,000/1.20) | -57000 | |
| Subsidiary income realized in transactions with third parties | 1509000 | |
| Power’s share of subsidiary income (.8 × 1,509,000) | 1207200 | |
| Toro Company’s reported net income | 2400000 | |
| Add: Unrealized profit considered realized in 2011 ($315,000 – $315,000/1.25) | 63000 | |
| Less: Unrealized profit in 2011 income ($345,000 – $345,000/1.25) | -69000 | |
| Subsidiary income realized in transactions with third parties | 2394000 | |
| Power’s share of subsidiary income (.9 × 2,394,000 | 2154600 | |
| Controlling Interest in Consolidated Net Income | 6970800 |
