Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. $\begin{array}{lrrr}&2012&2013&2014\
\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \
\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000
\end{array}$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $$\begin{array} { l c c c }
& \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \
\text { Gargiulo's net income } & \mathbf { \$ 7 0 , 0 0 0 } & \mathbf { \$ 8 5 , 0 0 0 } & \mathbf { \$ 9 4 , 0 0 0 } \
\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000
\end{array}$$ Compute the non-controlling interest in Gargiulo's net income for 2013.
A)$8,500.
B)$8,570.
C)$8,430.
D)$8,400.
E)$7,580.

Question

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. $\begin{array}{lrrr}&2012&2013&2014\
\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \
\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000
\end{array}$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $$\begin{array} { l c c c } 
& \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \
\text { Gargiulo's net income } & \mathbf { \$ 7 0 , 0 0 0 } & \mathbf { \$ 8 5 , 0 0 0 } & \mathbf { \$ 9 4 , 0 0 0 } \
\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000
\end{array}$$ Compute the non-controlling interest in Gargiulo's net income for 2013.
A)$8,500.
B)$8,570.
C)$8,430.
D)$8,400.
E)$7,580.

Quizplus · Accepted Answer

The non-controlling interest is 10% of Gargiulo's net income. For 2013, Gargiulo's net income is $85,000. Therefore, the non-controlling interest is 10% of $85,000, which is $8,500. However, adjustments for unrealized profit in ending inventory must be made. The unrealized profit in 2013's ending inventory is $4,000 * 25% = $1,000. The non-controlling interest share of this unrealized profit is 10% of $1,000, which is $100. Therefore, the adjusted non-controlling interest is $8,500 - $100 = $8,400.

Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells