Edgar Co. acquired 60% of Stendall Co. on January 1, 2011. During 2011, Edgar made several sales of inventory to Stendall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at the end of 2011. Consolidated cost of goods sold for 2011 was $2,140,000 because of a consolidating adjustment for intra-entity sales less the entire profit remaining in Stendall's ending inventory.
-How would noncontrolling interest in net income have differed if the transfers had been for the same amount and cost, but from Stendall to Edgar?
A) Noncontrolling interest in net income would have decreased by $6,000.
B) Noncontrolling interest in net income would have increased by $24,000.
C) Noncontrolling interest in net income would have increased by $20,000.
D) Noncontrolling interest in net income would have decreased by $18,000.
E) Noncontrolling interest in net income would have decreased by $56,000.

Question

Quizplus · Accepted Answer

If the transfers were from Stendall to Edgar, the unrealized profit in ending inventory would affect the noncontrolling interest. The unrealized profit is $15,000 ($60,000 profit on sales * 1/4 remaining inventory). Since Edgar owns 60%, the noncontrolling interest (40%) would be affected by 40% of $15,000, which is $6,000. Thus, the noncontrolling interest in net income would decrease by $6,000.

Edgar Co Acquired 60% of Stendall Co