Petunia Company acquired an 80% interest in Shaman Company in 2016. In 2017 and
ID: 2501554 • Letter: P
Question
Petunia Company acquired an 80% interest in Shaman Company in 2016. In 2017 and 2018, Shaman reported net income of $400,000 and $480,000, respectively. During 2017, Shaman sold $80,000 of merchandise to Petunia for a $20,000 profit. Petunia sold the merchandise to outsiders during 2018 for $140,000. For consolidation purposes, what is the noncontrolling interest’s share of Shaman's 2017 and 2018 net income?
a) $90,000 and $96,000. b) $100,000 and $76,000. c) $84,000 and $92,000. d) $76,000 and $100,000.
Explanation / Answer
Non-Controlling Interest (NCI) = 20%
Profit percentage for merchandise sold by Shaman = $20,000
So, share of NCI in this profit = $20,000 x 20% = $4,000
In 2017, $4,000 is the unrealized profit (since merchandise was not sold outside).
Net income of Shaman, 2017 = $400,000
Total NCI, 2017 = $400,000 x 20% + $4,000 = $(80,000 + 4,000) = $84,000
In 2018, the profit of $20,000 becomes realized due to outside sale.
Total NCI, 2018 = $480,000 x 20% - $4,000 = $(96,000 - 4,000) = $92,000
Correct option (c)