Question

On January 1, 2011, Matin Inc. (a wholly-owned subsidiary) sold equipment to Musial Corp. for $168,000...

On January 1, 2011, Matin Inc. (a wholly-owned subsidiary) sold equipment to Musial Corp. for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.

Musial earned $308,000 in net income in 2011 (including investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment. Musial Corp. sold inventory constantly to Matin Inc. Three years intra-entity inventory transfer figures are shown in the following table. Assume that gross profit percentage is 20%.

2010

2011

2012

Purchase by Matin

80,000

120,000

150,000

Ending Inventory on Matin's Book

12,000

40,000

30,000

Prepare a schedule of consolidated net income and the share to controlling and non-controlling interests for 2011, assuming that Musial owned only 90% of Matin.

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Answer #1

Original Cost of Machinery = 140,000

Net Book Value = 98,000

a. Unrealsied Profit on Sale = 168,000 - 98,000 = $60,000

Unrealised Profit on Inventory Purchase from Matin = 40,000 X20% /80% = $10,000

Net Income       1,26,000
Unrealised Profit on sale of asset         -60,000
Unrealised Profit on sale of inventory         -10,000
Net Income after adjustments          56,000
Income to Controlling Interest       50,400.0 90%
Income to Non-Controlling Interest         5,600.0 10%
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