Patten Company purchased an 80% interest in Salty Inc.on January 1, 2016, for $500,000 when the stockholders' equity of Salty was $500,000.Any excess of cost was attributed to a building with a 20-year life.On July 1, 2019, Patten sold part of its investment and reduced its ownership interest to 60%.Salty earned $62,000, evenly, during 2019.The NCI share of 2019 consolidated income is
A)$10,000
B)$12,400
C)$16,725
D)$43,400

Question

Patten Company purchased an 80% interest in Salty Inc.on January 1, 2016, for $500,000 when the stockholders' equity of Salty was $500,000.Any excess of cost was attributed to a building with a 20-year life.On July 1, 2019, Patten sold part of its investment and reduced its ownership interest to 60%.Salty earned $62,000, evenly, during 2019.The NCI share of 2019 consolidated income is
A)​$10,000
B)​$12,400
C)​$16,725
D)​$43,400

Quizplus · Accepted Answer

The NCI share of 2019 consolidated income is calculated based on the NCI's percentage of ownership and Salty's earnings. Since Patten reduced its ownership to 60% on July 1, 2019, the NCI owns 40% for the second half of the year. Salty earned $62,000 evenly during 2019, so it earned $31,000 in each half. For the first half, NCI owns 20% (100% - 80% ownership by Patten), and for the second half, NCI owns 40%. The NCI share is (20% of $31,000) + (40% of $31,000) = $6,200 + $12,400 = $18,600. However, since the question specifies the NCI share of consolidated income, and considering any potential adjustments for the excess cost attributed to the building (which is not directly factored into this calculation due to lack of specific data), the closest available option given the calculation is $16,725, acknowledging a possible adjustment or error in the initial calculation presented.

Patten Company Purchased an 80% Interest in Salty Inc