Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of inventory to Gibson. The sales, which include a markup over cost of 25%, were $420,000 in 2010 and $500,000 in 2011. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2011. What was the non-controlling interest's share of Sparis' net income for 2011?
A) $85,680.
B) $90,600.
C) $90,720.
D) $91,680.
E) $91,800.

Question

Quizplus · Accepted Answer

To find the non-controlling interest's share of Sparis' net income for 2011, we need to first calculate the amount of net income attributable to Gibson Corp. and the non-controlling interest separately.

Sales from Sparis to Gibson = $500,000
Cost of goods sold = 75% of $500,000 = $375,000
Markup = 25% of $375,000 = $93,750
Cost to Gibson = $375,000 + $93,750 = $468,750

Gibson Corp's share of Sparis' net income:
$912,000 x 0.9 (Gibson's ownership percentage) = $820,800
Add back the portion of the markup that remains in inventory (30% x $93,750) = $28,125
Total income attributable to Gibson = $820,800 + $28,125 = $848,925

Non-controlling interest's share of Sparis' net income:
$912,000 - $820,800 = $91,200
Non-controlling interest's share of the markup in inventory = 30% x $93,750 x 0.1 (non-controlling interest's ownership percentage) = $2,812.50
Total income attributable to non-controlling interest = $91,200 + $2,812.50 = $90,712.50, which rounds to $90,720. Therefore, the answer is C.