Consolidation entries and noncontrolling interest balances affected by inventory transfers
On January 1, 2010, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $300,000 consideration. At the acquisition date, the fair value of the 40 percent non-controlling interest was $200,000 and Rockne’s assets and liabilities had a collective net fair value of $500,000. Doone uses the equity method in its internal records to account for its investments in Rockne. Rockne reports net income of $160,000 in 2011. Since being acquired Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $250,000 in 2010 and $300,000 in 2011. Approximately 30 percent of the inventory purchased during any one year is not used until the following year.
a. What is the non-controlling interest’s share of Rockne’s 2011 income?
b. Prepare Doone’s 2011 consolidation entries required by the intra-entity inventory transfers.