On January 1, 2014, Doone Corporation acquired 70 percent of the outstanding vot

Question

On January 1, 2014, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $546,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $234,000 and Rockne's assets and liabilities had a collective net fair value of $780,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $280,000 in 2015. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $340,000 in 2014 and $440,000 in 2015 Approximately 40 percent of the inventory purchased during any one year is not used until the following year a. What is the noncontrolling interest's share of Rockne's 2015 income? Answer is complete and correct ncontrolling interest's sha 81,600 b. Prepare Doone's 2015 consolidation entries required by the intra-entity inventory transfers. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. Transaction Consolidating Entries Debit Credit (1) Prepare entry *G 23,800 Retained earnings Cost of goods sold 23,800 (2) Prepare entry TI Sales 310,000 Cost of goods sold 310,000 (3) Prepare entry G Cost of goods sold Inventory 21,700 21,700

Explanation / Answer

Answer:

First of all we will find % to gross profit rate

Mark up percentage (as given)

25%

convert it to gross profit rate
=0.25/1.25

20%

Now we will find Non controlling interest share of subsidiary income

Calculation of the Non controlling interest share of subsidiary income

Non controlling interest share of subsidiary income

reported income in 2015

280,000

Add:

2014 intra company gross profit which is realized in 2015
=340,000*40%*20%

27200

Less:

differed gross profit for 2015
=440,000*40%*20%

-35200

2015 subsidiary realized gross income

272,000

Outside ownership %=30%

30%

Non controlling interest share of subsidiary income

81600

Now we will pass the consolidation entry as under

Date

Description

Debit $

Credit $

12/31/2015

Retained earning

27200

Cost of goods sold

27200

12/31/2015

Sales

440,000

Cost of goods sold

440,000

12/31/2015

Cost of goods sold

35200

Inventory

35200

Mark up percentage (as given)

25%

convert it to gross profit rate
=0.25/1.25

20%

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