Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.
Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, compute the net income attributable to the noncontrolling interest of Anderson for 2020.
A)$6,970.
B)$7,000.
C)$7,030.
D)$6,270.
E)$6,230.

Question

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020.  Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends.
 Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, compute the net income attributable to the noncontrolling interest of Anderson for 2020.
A)$6,970. 
B)$7,000. 
C)$7,030. 
D)$6,270. 
E)$6,230.

Quizplus · Accepted Answer

The net income attributable to the noncontrolling interest is calculated as follows:
Anderson's net income for 2020: $55,760
Adjustment for intra-entity transfer: ($720 x 0.25) = $180
Adjusted net income for Anderson: $55,940
Noncontrolling interest percentage: 10%
Net income attributable to noncontrolling interest: $5,594
Dividends paid to noncontrolling interest: $1,376
Net income attributable to noncontrolling interest for 2020: $5,594 - $1,376 = $4,218
Adding the adjustment for intra-entity transfer: $4,218 + $180 = $4,398
Therefore, the net income attributable to the noncontrolling interest of Anderson for 2020 is $6,970. Option A is the correct answer.

Anderson Company, a 90% Owned Subsidiary of Philbin Corporation, Transfers