In the year an 80% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is calculated by multiplying the noncontrolling interest percentage by the subsidiary's reported net income:
A) plus the intercompany gain considered realized in the current period.
B) plus the net amount of unrealized gain on the intercompany sale.
C) minus the net amount of unrealized gain on the intercompany sale.
D) minus the intercompany gain considered realized in the current period.

Question

Quizplus · Accepted Answer

C) minus the net amount of unrealized gain on the intercompany sale. This is because the gain on the sale of equipment from the subsidiary to the parent is not realized from a consolidated perspective until the equipment is sold to an external party. Therefore, the noncontrolling interest's share of consolidated net income should be calculated after subtracting the unrealized gain, as this gain inflates the subsidiary's reported net income from a consolidated viewpoint.

In the Year an 80% Owned Subsidiary Sells Equipment to Its