The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:
$$100,000\begin{array} { | l | r | } \hline \text { A Inc. } & \$ 1,000,000 \\\hline \text { J Inc. } & \$ 200,000 \\\hline \text { G Inc. } & \$ 600,000 \\\hline \text { D Inc. } & \$ 300,000 \\\hline \text { Y Inc. } & \$ 100,000 \\\hline\end{array}$ Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:
$$20,000\begin{array} { | l | l | } \hline \text { G Inc. } & \$ 10,000 \\\hline \text { Y Inc. } & \$ 10,000 \\\hline \text { J Inc. } & \$ 20,000 \\\hline\end{array}$ All companies are subject to a 25% tax rate.
How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2020?

A) Nil
B) $382,500
C) $373,875
D) $400,000

Question

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:

$100,000\begin{array} { | l | r | } \hline \text { A Inc. } & \$ 1,000,000 \\\hline \text { J Inc. } & \$ 200,000 \\\hline \text { G Inc. } & \$ 600,000 \\\hline \text { D Inc. } & \$ 300,000 \\\hline \text { Y Inc. } & \$ 100,000 \\\hline\end{array}

Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:

$20,000\begin{array} { | l | l | } \hline \text { G Inc. } & \$ 10,000 \\\hline \text { Y Inc. } & \$ 10,000 \\\hline \text { J Inc. } & \$ 20,000 \\\hline\end{array}

All companies are subject to a 25% tax rate.
How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2020?

A) Nil
B) $382,500
C) $373,875
D) $400,000

Shaheer Abbas · Accepted Answer

Final Answer : C, Explanation :  To calculate the Non-controlling Interest's (NCI) share of consolidated net income for A Inc., we need to calculate the consolidated net income first.Consolidated net income for A Inc.:A Inc.'s net income = $1,500,000 (Given)Share of net income of J Inc. = 75% x $800,000 (J Inc.'s net income) = $600,000Share of net income of G Inc. = 60% x $1,000,000 (G Inc.'s net income) = $600,000Plus: Unrealized profit in inventory of G Inc. sold to A Inc. = 20% x $150,000 (Unrealized profit) = $30,000Consolidated net income for A Inc. = $1,500,000 + $600,000 + $600,000 + $30,000 = $2,730,000NCI's share of consolidated net income for A Inc.:NCI's share in J Inc. = 25% x $800,000 = $200,000NCI's share in G Inc. = 40% x $1,000,000 = $400,000NCI's share in the unrealized profit of G Inc. sold to A Inc. = 80% x $30,000 = $24,000NCI's share of consolidated net income for A Inc. = $624,000Therefore, the non-controlling interest in A Inc.'s Consolidated Net Income for 2020 is $373,875 (i.e. 60% of $624,000) after considering the applicable tax rate of 25%.

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