In: Accounting
On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $600,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $400,000 and Rockne's assets and liabilities had a collective net fair value of $1,000,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $390,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $450,000 in 2017 and $550,000 in 2018. Approximately 35 percent of the inventory purchased during any one year is not used until the following year.