Gibson Corp.owned a 90% interest in Sparis Co.Sparis frequently made sales of inventory to Gibson.The sales,which include a markup over cost of 25%,were $420,000 in 2009 and $500,000 in 2010.At the end of each year,Gibson still owned 30% of the goods.Net income for Sparis was $912,000 during 2010.What was the noncontrolling interest's share of Sparis' net income for 2010?

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for Sparis in 2010:
Sales revenue - Markup = COGS
$500,000 - ($500,000/1.25) = $400,000
Next, we need to calculate the noncontrolling interest's share of Sparis' net income using the formula:
Net Income x Noncontrolling interest percentage
$912,000 x 0.10 (10% = 100% - 90% Gibson's ownership) = $91,200
However, Gibson still owned 30% of the goods at the end of 2010, so we need to subtract out their share of the inventory holding gains/losses:
($500,000/1.25) x 0.30 - ($420,000/1.25) x 0.30 = $4,320
Therefore, the noncontrolling interest's share of Sparis' net income for 2010 is:
$91,200 - $4,320 = $90,720. The correct answer is C.