Question

Pale Company owns 80% of Sienna Co. The excess of acquisition cost was entirely attributed to previously unrecorded intangibles. For FYE 2019, Sienna reported net income of $7,000,000 and declared and paid dividends of $2,000,000. Amortization of the previously unrecorded intangible assets for 2019 is $1,750,000. Also consider the following: In 2019 Sienna sold land to Pale at a recorded loss of $300,000. Pale still owns the land at year-end 2019. Pale’s ending inventory at year-end 2019 included merchandise acquired from Sienna. The unconfirmed profit on the inventory was $600,000. Pale’s ending inventory at the previous year-end included merchandise acquired from Sienna. The unconfirmed profit on that inventory was $450,000. On 1/3/2018, Pale sold equipment to Sienna at a gain of $1,000,000. At the time of the sale, the remaining life of this equipment was 10 years (straight-line). Sienna still holds the equipment at 12/31/2019. Use this data to answer questions 1-5. All data is relevant.

How much is the Non-controlling interest in Sierra’s net income?

	a.	$1,160,000
	b.	$1,080,000
	c.	$1,450,000
	d.	$1,100,000
	e.	$1,380,000

Answer 1

Answer:

Option (b) $1,080,000 is correct

	Total	Putnam company’s equity in net income (80%)	Non controlling interest in net income (20%)
Swaraj reported net income	7,000,000	5,600,000	1,400,000
Amortization of identifiable intangibles	(1,750,000)	(1,400,000)	(350,000)
Upstream loss on land	300,000	240,000	60,000
Unconfirmed profit in end. inventory – upstream	(600,000)	(480,000)	(120,000)
Confirmed profit in beg. inventory – upstream	450,000	360,000	90,000
Confirmed profit on downstream equipment sale(= $1,000,000/10)	100,000	100,000
	5,500,000	4,420,000	1,080,000