Question

On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $546,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $234,000 and Rockne's assets and liabilities had a collective net fair value of $780,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $280,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $340,000 in 2017 and $440,000 in 2018. Approximately 40 percent of the inventory purchased during any one year is not used until the following year.

1. What is the noncontrolling interest's share of Rockne's 2018 income?
2. Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

b.

Prepare entry *G

Prepare entry Tl

Prepare entry G

Answer 1

ANSWER

1). Conversion to Gross Profit Rate = 25% / 125% = 20%

Non Controlling Interest's Share of Subsidiary Income
Reported income in 2018	$280,000
Add : 2017 Intra Company gross Profit Realized in 2018 ($340,000 *40%*20%)	$27,200
Less : Deferred Intra Company Gross Profit for 2018 ($440,000 *40%*20%)	($35,200)
2018 Subsidiary Realized Income	$272,000
Outside Ownership Percentage	30%
Non Controlling Interest's Share of Subsidiary Income	$81,600

b). Journal Entries :-

Date	Particulars	Debit ($)	Credit ($)
Dec. 31	Retained Earnings A/c Dr.	27,200
	To Cost of Goods Sold		27,200
Dec. 31	Sales A/c Dr.	440,000
	To Cost of Goods Sold		440,000
Dec. 31	Cost of Goods Sold A/c Dr.	35,200
	To Inventory		35,200

---------------------------------------------------------------------

DEAR STUDENT,
If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating.

*****************THANK YOU**************