Tooker Co.acquired 80% of the outstanding common shares of Vu Ltd.There were no fair value increments or goodwill that arose with the purchase.During 20X1,Tooker sold $7,000 of inventory to Vu for a gross profit of 40%.At the end of 20X1,$3,000 of the inventory is still in Vu's inventory.On their single-entity income statements for 20X1,Tooker and Vu reported the following:

Vu sold all the goods from Tooker that were in its opening inventory.There were no sales between Tooker and Vu in 20X2.At the end of 20X2,what portion of consolidated net income is attributable to Tooker?

Question

Tooker Co.acquired 80% of the outstanding common shares of Vu Ltd.There were no fair value increments or goodwill that arose with the purchase.During 20X1,Tooker sold $7,000 of inventory to Vu for a gross profit of 40%.At the end of 20X1,$3,000 of the inventory is still in Vu's inventory.On their single-entity income statements for 20X1,Tooker and Vu reported the following:

Vu sold all the goods from Tooker that were in its opening inventory.There were no sales between Tooker and Vu in 20X2.At the end of 20X2,what portion of consolidated net income is attributable to Tooker?

Quizplus · Accepted Answer

To find the consolidated net income, we need to eliminate the intercompany sales and any remaining inventory from the financial statements of Tooker and Vu.

Consolidated net sales: 
Tooker's net sales = $300,000 
Vu's net sales = $60,000 
Intercompany sales = $7,000 
Eliminating intercompany sales = $353,000

Consolidated cost of goods sold: 
Tooker's cost of goods sold = $200,000 
Vu's cost of goods sold = $38,000 
Intercompany profit = $2,800 ($7,000 x 40%) 
Eliminating intercompany profit = $235,200

Consolidated gross profit: 
Consolidated net sales - consolidated cost of goods sold = $117,800

To determine the portion of consolidated net income attributable to Tooker, we need to calculate the non-controlling interest's share of the net income:

Non-controlling interest's share of net income = (20% x $31,000) + (20% x $3,800) 
Non-controlling interest's share of net income = $6,200 + $760 
Non-controlling interest's share of net income = $6,960

Tooker's share of net income = Consolidated net income - non-controlling interest's share of net income:

Tooker's share of net income = $110,840 - $6,960 
Tooker's share of net income = $103,880

Therefore, the answer is C) $9,920.

Tooker CoAcquired 80% of the Outstanding Common Shares of Vu Ltd