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ABC Company acquired a 80% interest in the DEF Company in year 1. For the year ended December 31,...

Question:

ABC Company acquired a 80% interest in the DEF Company in year 1. For the year ended December 31, year 2, ABC reported net income of $100,000. During year 2, ABC sold merchandise to DEF for $10,000 at a profit of $3,000. The merchandise remained in DEF' s inventory at the end of year 2. For consolidation purposes what is the noncontrolling interest's share of DEF's net income for year 2?

a. $ 20,000

b. $23,400

c. $24,000

d. $26,000

Profit.

Profit is a financial benefit that is earned by the company by deducting all the expenses of the company. The expenses must be less as if the company spends more money on the indirect costs; then the company will face loss in-spite of the profit.

Answer and Explanation:

The correct option is a($20,000)

Given,

Net income: $100,000

Sales: $10,000

Profit: $3,000

Now,

{eq}\begin{align*} {\rm{Controlling\;Interest}}&=100%\\ \\ {\rm{Non-Controlling\;Interest}}&=100%-80%\\ \\ &=20% \end{align*} {/eq}

So,

{eq}\begin{align*} {\rm{Non-Conrolling\;Interest}}&={\rm{Net\;Income}}\times {\rm{Rate}}\\ &=100,000\times 20%\\ \\ &=20,000 \end{align*} {/eq}


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How to Calculate Interest Expense: Formula & Example

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