Petunia Company acquired an 80% interest in Shaman Company in 2016. In 2017 and

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)

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