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On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne...

On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $462,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $198,000 and Rockne's assets and liabilities had a collective net fair value of $660,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $220,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $280,000 in 2017 and $380,000 in 2018. Approximately 40 percent of the inventory purchased during any one year is not used until the following year. What is the noncontrolling interest's share of Rockne's 2018 income? Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

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Answer #1

Answer:

a) Conversion to Gross profit rate = 25%/125% = 20%

Non controlling interests share of subsidiary income:
Reported income in 2018 220000
Add: 2017 intra company gross profit realized in 2018 (280000*40%*20%) 22400
Less: Deferred intra company gross profit for 2018 (380000*40%*20%) (30400)
2018 Subsidiary realized income 212000
outside ownership percentage 30%
Non Controlling interests share of subsidiary income 63600

b) Journal Entry:

Date` Particulars Debit ($) Credit ($)
Dec 31 Retained Earnings 224000
Cost of goods sold 224000
Dec 31 Sales 380000
Cost of goods sold 380000
Dec 31 Cost of goods sold 30400
Inventory 30400
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