Question

Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to its parent at a $24,000 profit in 2005. Penguin resold one-third of this inventory to outside entities. Squid reported net income of $100,000 for 2005. The amount of noncontrolling interest share that will appear in the consolidated income statement for 2005 is
a.	$ 8,400.
b.	$ 9,200.
c.	$10,000.
c.	$10,800.

Answer 1

a.$8,400.

Profit recognised on transactions with in the group shall be written off;

here,

out of $24,000 profit made, 1/3 rd of the goods are sold off, so adustment is to be made in respect of 2/3rd of the units

the profit related to this 2/3rd units = $24,000 *2/3 =>$16,000.

this $16,000 is to be reduced from net income of $100,000.

so the consolidated net income will be $100,000-16,000 =>$84,000.

now the non controlling interest part will be = $84,000*(1-0.90 owned by parent)=>$8,400.