On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding vot

Question

On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $378,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $162,000 and Rockne's assets and liabilities had a collective net fair value of $540,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $160,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $220,000 in 2017 and $320,000 in 2018. Approximately 40 percent of the inventory purchased during any one year is not used until the following year.

Part A:

What is the noncontrolling interest's share of Rockne's 2018 income?

Part B:

Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers:(Prepare entry *G, TI, and G)

Explanation / Answer

Solution :-

1). Conversion to Gross Profit Rate = 25% / 125% = 20%

b). Journal Entries :-

Non Controlling Interest's Share of Subsidiary Income Reported income in 2018 $160000 Add : 2017 Intra Company gross Profit Realized in 2018 ($220000*40%*20%) $17600 Less : Deferred Intra Company Gross Profit for 2018 ($320000*40%*20%) ($25600) 2018 Subsidiary Realized Income $152000 Outside Ownership Percentage 30% Non Controlling Interest's Share of Subsidiary Income $45600

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