Norman Ltd. owns 60% of the outstanding common shares of Arnie Ltd. During 2013, sales from Arnie to Norman were $200,000. Merchandise was priced to provide Arnie with a gross margin of 20%. Norman's inventories contained $40,000 at December 31, 2012 and $15,000 at December 31, 2013 of merchandise purchased from Arnie. Cost of goods sold for Norman and Arnie for 2013 on their separate-entity income statements were as follows: $\begin{array}{|l|r|r|}
\hline& \text { Norman } & \text { Arnie } \
\hline \text { Beginning inventory } & \$ 100,000 & \$ 50,000 \
\hline \text { Purchases } & 700,000 & 200,000 \
\hline \text { Ending inventory } & (110,000) & (55,000) \
\hline \text { Cost of goods sold } & \$ 690,000 & \$ 195,000 \
\hline
\end{array}$ How much is the non-controlling interest adjusted for its share of the consolidated net income for the year ended December 31, 2013?
A)$3,000.
B)$5,000.
C)$1,250.
D)$2,000.

Question

Norman Ltd. owns 60% of the outstanding common shares of Arnie Ltd. During 2013, sales from Arnie to Norman were $200,000. Merchandise was priced to provide Arnie with a gross margin of 20%. Norman's inventories contained $40,000 at December 31, 2012 and $15,000 at December 31, 2013 of merchandise purchased from Arnie. Cost of goods sold for Norman and Arnie for 2013 on their separate-entity income statements were as follows: $\begin{array}{|l|r|r|} 
\hline& \text { Norman } & \text { Arnie } \
\hline \text { Beginning inventory } & \$ 100,000 & \$ 50,000 \
\hline \text { Purchases } & 700,000 & 200,000 \
\hline \text { Ending inventory } & (110,000) & (55,000) \
\hline \text { Cost of goods sold } & \$ 690,000 & \$ 195,000 \
\hline
\end{array}$ How much is the non-controlling interest adjusted for its share of the consolidated net income for the year ended December 31, 2013?
A)$3,000.
B)$5,000.
C)$1,250.
D)$2,000.

Quizplus · Accepted Answer

The non-controlling interest is adjusted for its share of the consolidated net income by eliminating the intercompany profit. The intercompany profit is the difference between the sales price and the cost of goods sold for the intercompany sales. In this case, the intercompany profit is $200,000 - $160,000 = $40,000. The non-controlling interest owns 40% of Arnie, so its share of the intercompany profit is $40,000 * 40% = $16,000. The non-controlling interest's share of the consolidated net income is then $3,000 - $16,000 = -$13,000.

Norman Ltd How Much Is the Non-Controlling Interest Adjusted for Its Share