Asked by
Ireland Knight
on Nov 30, 2024
Verified
On June 30, 2018, Parent Company sold some land to its subsidiary for $240,000. The land had cost Parent Company $120,000 when it was acquired three years previously. The transaction was subject to income tax at a rate of 20%. On June 30, 2020, the subsidiary sold the land to an outside party for $275,000. This transaction was also subject to income tax at a 20% rate. Parent Company owns 75% of the outstanding shares of its subsidiary and accounts for its investment using the cost method. What effect will the adjustment for the realization of the intercompany gain (in the preparation of the consolidated income statement) have on the non-controlling interest in income for 2020?
A) It will have no effect on the non-controlling interest in income.
B) It will decrease the non-controlling interest in income by $24,000.
C) It will increase the non-controlling interest in income by $24,000.
D) It will increase the non-controlling interest in income by $30,000.
Non-Controlling Interest
The portion of equity interest in a subsidiary not attributable to the parent company, representing minority shareholders' claim on assets and earnings.
Intercompany Gain
Profit derived from transactions between subsidiaries or divisions of the same company.
Consolidated Income Statement
Consolidated Income Statement is a financial statement that aggregates the financial performance of a company and its subsidiaries, presenting the overall income, expenses, and net income.
- Assess the effect of subsidiary operations on the non-controlling stakeholders.
Verified Answer
DC
Learning Objectives
- Assess the effect of subsidiary operations on the non-controlling stakeholders.