Planet Company acquired a 70% interest in the Star Company
in year 1. For the year ended December 31, year 2, Star
reported net income of $80,000. During year 2, Planet sold merchandise
to Star for $10,000 at a profit of $2,000. The merchandise
remained in Star’s inventory at the end of year 2. For consolidation
purposes what is the noncontrolling interest’s share of
Star’s net income for year 2?

(b) Because Planet owns 70% interest in Star, the
noncontrolling interest in star is 30%. Therefore, the noncontrolling
interest’s share in Star’s net income of $80,000 is 30% ×
$80,000 = $24,000. Planet’s sale of merchandise to Star for
$10,000 will be eliminated on the consolidated worksheet, and
Planet’s income will be reduced by the intercompany profit of
$2,000. This will not affect the noncontrolling interest’s share of
income because it was a downstream sale from the parent to the
subsidiary and is eliminated by the parent.