Question

2.         On January 1, 2018, a 70%-owned Subsidiary company sold to its Parent company for $183,000 a parcel of land that had cost the Subsidiary $172,000. On March 2, 2021, Parent company sold the land to an outside company for $200,000. How are Parent’s 2021 equity in net income of Subsidiary and 2021 noncontrolling interest in net income affected by the intercompany sale of land?

                        Equity in net income                 Noncontrolling interest in net income

            a.         $11,000 increase                       $0

            b.         $7,700 increase                         $3,300 increase

            c.         $11,000 decrease                      $0

            d.         $7,700 decrease                         $3,300 decrease

Answer 1

Ans:

Ownership in subsidiary = 70%

Cost of land sold to parent company= $172,000

Sale price = $183,000

Profit earned by Subsidiary =$11,000

At the time of consolidation, intercompany profit should be removed.

So $11,000 profit in the books of subsidiary to be reduced.

Now holding is subsidiary = 70%

Non controlling interest = 30%

So correct answer is option D.

Equity in net income to be reduced by $7,700 and Non controlling interest in net income to be reduced by $3,300.