Pabari Corporation owns an 80% interest in Alders Corporation and Alders owns a 60% interest in Babao Corporation.Both interests were acquired at a cost equal to book value equal to fair value.During 2013,Alders sells land to Babao at a profit of $12,000.Babao still holds the land at December 31,2013 Net income(loss)of the three companies (excluding investment income)for 2013 are:
Controlling interest share of consolidated net income and noncontrolling interest share,respectively,for 2013 are

Question

Pabari Corporation owns an 80% interest in Alders Corporation and Alders owns a 60% interest in Babao Corporation.Both interests were acquired at a cost equal to book value equal to fair value.During 2013,Alders sells land to Babao at a profit of $12,000.Babao still holds the land at December 31,2013 Net income(loss)of the three companies (excluding investment income)for 2013 are: 
Controlling interest share of consolidated net income and noncontrolling interest share,respectively,for 2013 are

Quizplus · Accepted Answer

To solve this problem, we need to prepare a consolidated income statement.

Pabari Corporation's share of Alders Corporation's net income is calculated as follows:

80% x $240,000 = $192,000

Alders Corporation's share of Babao Corporation's net income is calculated as follows:

60% x $72,000 = $43,200

Consolidated net income is calculated as follows:

Pabari Corporation's share of Alders Corporation's net income ($192,000) + Alders Corporation's share of Babao Corporation's net income ($43,200) = $235,200

To calculate the controlling interest share of consolidated net income, we need to subtract the noncontrolling interest share of Babao Corporation's net income:

$235,200 - (40% x $72,000) = $213,600

Therefore, the controlling interest share of consolidated net income is $213,600.

The noncontrolling interest share is calculated as follows:

40% x $72,000 = $28,800

However, we also need to adjust for the profit on the land sale from Alders to Babao. This profit is eliminated in consolidation, so we need to add it back to Alders' net income and subtract it from Babao's net income.

Alders' net income increases by $12,000, so the new calculation is:

80% x ($240,000 + $12,000) = $201,600

Babao's net income decreases by $12,000, so the new calculation is:

60% x ($72,000 - $12,000) = $36,000

Now we can calculate the noncontrolling interest share:

40% x $36,000 = $14,400

Therefore, the noncontrolling interest share of consolidated net income is $14,400.

The final answer is:

Controlling interest share of consolidated net income = $213,600
Noncontrolling interest share of consolidated net income = $14,400

The closest answer choice is D) $213,600 and ($3,600).

Pabari Corporation Owns an 80% Interest in Alders Corporation and Alders