On January 1, 2011, Matin Inc. (a wholly-owned subsidiary) sold equipment to Mus
ID: 2525515 • Letter: O
Question
On January 1, 2011, Matin Inc. (a wholly-owned subsidiary) sold equipment to Musial Corp. for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.
Musial earned $308,000 in net income in 2011 (including investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment. Musial Corp. sold inventory constantly to Matin Inc. Three years intra-entity inventory transfer figures are shown in the following table. Assume that gross profit percentage is 20%.
2010
2011
2012
Purchase by Matin
80,000
120,000
150,000
Ending Inventory on Matin's Book
12,000
40,000
30,000
Prepare a schedule of consolidated net income and the share to controlling and non-controlling interests for 2011, assuming that Musial owned only 90% of Matin.
2010
2011
2012
Purchase by Matin
80,000
120,000
150,000
Ending Inventory on Matin's Book
12,000
40,000
30,000
Explanation / Answer
Original Cost of Machinery = 140,000
Net Book Value = 98,000
a. Unrealsied Profit on Sale = 168,000 - 98,000 = $60,000
Unrealised Profit on Inventory Purchase from Matin = 40,000 X20% /80% = $10,000
Net Income 1,26,000 Unrealised Profit on sale of asset -60,000 Unrealised Profit on sale of inventory -10,000 Net Income after adjustments 56,000 Income to Controlling Interest 50,400.0 90% Income to Non-Controlling Interest 5,600.0 10%Related Questions
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