Assume an upstream sale of machinery occurs on January 1,2014.The parent owns 70% of the subsidiary.There is a gain on the intercompany transfer and the machine has five remaining years of useful life and no salvage value.Straight-line depreciation is used.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Noncontrolling interest share represents the portion of the subsidiary's income or loss that is attributable to the non-controlling shareholders. In this scenario, since there is a gain on the intercompany transfer, the subsidiary's income will increase. However, since the parent owns 70% of the subsidiary, only 30% is attributable to the non-controlling shareholders. Additionally, the excess depreciation expense will also decrease the subsidiary's income. Therefore, the correct formula to calculate noncontrolling interest share for 2014 is (subsidiary income for 2014 minus the gain on sale plus the excess depreciation expense) multiplied by 30%. Choice B is the correct answer.

Assume an Upstream Sale of Machinery Occurs on January 1,2014