Big Corporation receives management consulting services from its 93 percent owne

Question

Big Corporation receives management consulting services from its 93 percent owned subsidiary, Small Inc. During 20X7, Big paid Small $20K for its services. Small's labor cost and other associated costs for the employees providing services to Big totaled $8,000 in 20X7. Big reported $450,000 of income from its own separate operations for 20X8, and Small reported net income of $300,000. Based on the preceding information, what amount of income should be assigned to the non-controlling interest shareholders in the consolidated income statement for 20X8?

Explanation / Answer

Income assigned to Non-controlling interest shareholders in the consolidated income statement for 20X8 =

Non- controlling interest % x Subsidiary's profits

= 7% x $300000

= $21000

The income reported by small corporation separately is taken to be the income of the subsidiary as the intra- group sales and purchases are not taken into consideration while making the consolidated income statements.

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