Choco Company (subsidiary), a 85% owned subsidiary of Allie Corporation (parent)

Question

Choco Company (subsidiary), a 85% owned subsidiary of Allie Corporation (parent), sells inventory to Allie (upstream) at a 20% profit on selling price. The following data are available pertaining to intra-entity purchases. Choco was acquired on January 1, 2015. Allie purchased inventory from Choco for $9,000 and at the end of 2015, Allie still have $2,200 inventory.

Assume the equity method is used. During 2015, Choco had net income of $120,000 and paid dividends of $15,000.

a. Compute the equity in earnings of Choco reported on Allie's books for 2015.

b. Compute the non-controlling interest in Choco's net income for 2015.

Explanation / Answer

Amount $ Reported Income of Choco 120000 Less: Unrealized profit on ending inventory -440 Add: inventory profit on sale to third parties 1360 Subsidary Income 120920 Allie corporation share (120920*85%) 102782 Ans a Non controlling interest share (120920*15%) 18138 Ans b sales COGS Ending Inventory Inventory sold toparent 9000 6800 2200 Cost of inventory is 80% of selling price 5440 1760 Relized profit 1360 Unrealized profit 440

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