Plum Inc.acquired 90% of the capital stock of Sterling Co.on 1/1/16 at a cost of $540,000.On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000.
On 1/1/16 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share.Internally generated net income was $50,000 for Plum and $40,000 for Sterling.The non-controlling interest in consolidated net income is
A)$2,000
B)$18,000
C)$7,500
D)$6,800

Question

Plum Inc.acquired 90% of the capital stock of Sterling Co.on 1/1/16 at a cost of $540,000.On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. ​
On 1/1/16 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share.Internally generated net income was $50,000 for Plum and $40,000 for Sterling.The non-controlling interest in consolidated net income is
A)​$2,000
B)​$18,000
C)​$7,500
D)​$6,800

Quizplus · Accepted Answer

The non-controlling interest in consolidated net income is calculated as 10% of Sterling's net income, which is $40,000. Therefore, 10% of $40,000 is $4,000. However, since Sterling owns 5% of Plum, the non-controlling interest is reduced by 5% of Plum's net income, which is $50,000. So, 5% of $50,000 is $2,500. The non-controlling interest is $4,000 - $2,500 = $1,500, but the closest option is $2,000.

Plum IncAcquired 90% of the Capital Stock of Sterling Co