Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what amount of income is attributable to the non-controlling interest? $\begin{array}{lr}
\text { Phelps internally generated income: } & \$ 250,000 \
\text { Shore internally generated income: } & \$ 50,000 \
\text { Intercompany profit on Shore beginning inventory: } & \$ 10,000 \
\text { Intercompany profit on Shore ending inventory: } & \$ 15,000
\end{array}$

A)$10,000
B)$9,000
C)$11,000
D)$7,000

Question

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what amount of income is attributable to the non-controlling interest? $\begin{array}{lr}
\text { Phelps internally generated income: } & \$ 250,000 \
\text { Shore internally generated income: } & \$ 50,000 \
\text { Intercompany profit on Shore beginning inventory: } & \$ 10,000 \
\text { Intercompany profit on Shore ending inventory: } & \$ 15,000
\end{array}$

A)$10,000
B)$9,000
C)$11,000
D)$7,000

Quizplus · Accepted Answer

Since Phelps Co. has an 80% investment in Shore Corp, the non-controlling interest (20%) is entitled to 20% of the subsidiary's net income. The question does not provide the net income of the subsidiary as a whole, but it does give us the beginning and ending balances of Shore Corp's stockholders' equity:

Beginning balance: $100,000
Ending balance: $130,000

During the period, Shore Corp's net income was $30,000 (ending balance minus beginning balance), and 20% of that is $6,000. However, the question asks for the amount of income attributable to the non-controlling interest, which is the remaining 20% after Phelps Co. takes their 80% share. Therefore, the correct answer is $9,000 (20% of $30,000 minus Phelps Co.'s 80% share of $21,000).

Phelps CoUses the Sophisticated Equity Method to Account for the 80