Kenzie Co. acquired 70% of McCready Co. on January 1, 2021. During 2021, Kenzie made several sales of inventory to McCready. The cost and sales price of the goods were $150,000 and $220,000, respectively. McCready still owned one-fourth of the goods at the end of 2021. Consolidated cost of goods sold for 2021 was $2,280,000 due to a consolidating adjustment for intra-entity transfers less intra-entity gross profit in McCready's ending inventory.How would net income attributable to the noncontrolling interest be different if the transfers had been for the same amount and cost, but from McCready to Kenzie?
A) Net income attributable to the noncontrolling interest would have decreased by $5,250.
B) Net income attributable to the noncontrolling interest would have increased by $17,500.
C) Net income attributable to the noncontrolling interest would have increased by $10,500.
D) Net income attributable to the noncontrolling interest would have decreased by $15,750.
E) Net income attributable to the noncontrolling interest would have decreased by $52,500.

Question

Quizplus · Accepted Answer

When the transfer is from McCready to Kenzie, the unrealized profit in ending inventory affects McCready's income, reducing it. Since McCready is 30% noncontrolling interest, the reduction in McCready's income reduces the noncontrolling interest's share by $5,250 (30% of $17,500 unrealized profit).

Kenzie Co Acquired 70% of McCready Co