Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2010, Thelma sold a parcel of land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income for 2010 was $119,000. What is the non-controlling interest's share of Thelma's net income?
A) $35,700.
B) $31,800.
C) $39,600.
D) $22,200.
E) $26,100.

Question

Quizplus · Accepted Answer

Since Norek owns 70% of Thelma, the non-controlling interest owns 30%. Therefore, the non-controlling interest's share of net income is:
$119,000 x 30% = $35,700
However, since Thelma sold a parcel of land to Norek, there is a gain on the sale that must be eliminated from Thelma's net income to determine the non-controlling interest's share. The gain on the sale is the difference between the sales price and the book value:
$45,000 - $32,000 = $13,000
The non-controlling interest's share of this gain is:
$13,000 x 30% = $3,900
Therefore, the non-controlling interest's share of Thelma's net income is:
$35,700 - $3,900 = $31,800.