Question

High owns 60% of Low. In 2019, Low sold inventory (cost $70,000) to High for $100,000. 40% of this inventory was not sold to third parties by High until 2020. In 2020, Low sold inventory (cost $72,000) to High for $120,000. Of this inventory, $50,000 was not sold to third parties by High until 2021. In 2020, Low reports $70,000 of net income. What is the noncontrolling interest in 2020 income of Low. $24,800 $31,200 $37,200 $46,800

Answer 1

Answer: $24800

Explanation:

To calculate the noncontrolling interest in 2020 income of Low goes thus:

Profit reported by Low in 2020 = $70000

Add: Profit in opening stock that isn't sold to third party = ($100,000 × 40%) × 30% = $12,000

Less Profit in Opening stock that's not sold to third party = $50000 ×40% =$20000

The Total Profit will be:

= $70000 + $12000 - $20000

= $62000

Then, the noncontrolling interest in 2020 income of Low will be:

= $62000 × 40%

= $62000 × 0.4

= $24800