Question

On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $564,000
consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $376,000 and Rockne's assets and
liabilities had a collective net fair value of $940,000. Doone uses the equity method in its internal records to account for its investment in
Rockne. Rockne reports net income of $360,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25
percent more than cost. Sales to Doone amounted to $420,000 in 2017 and $520,000 in 2018. Approximately 35 percent of the inventory
purchased during any one year is not used until the following year.

a. What is the noncontrolling interest's share of Rockne's 2018 income?
b. Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

Answer 1

solution- a) The value of non controlling interest's share Rockne's 2018 income determined as below a of 360000 Net income of subsidiary in 2018 Add: 2017 intra equity gross profit realized in 2018 (420000 X 35%.X20%) 29uoo Less 2018 intra equity gross profit deffered (520000 x 35% x 207.) (36400) Realized income of subsidiary 353000 Non of controlling interests share net income (353000 x 40%) $ 141200 Note ² Gross profit margin = 251. (1+25%) -20%

consolidation Journal entries Date General Journal 1 Debit credit Journal entry for entity G 3)-12-2018 Retained earnings २१५०० cost of goods sold $ 29000 Journal entry for T 31-12-2018 7 $520.000 sales cost of goods sold $ 520000 Journal entry for entity G 1 31-12-2018 cost of goods sold $36400 Inventory $36400