On January 1, 2016, Pound Company Acquired an 80% Interest

question 11

Essay

On January 1, 2016, Pound Company acquired an 80% interest in the common stock of Sound Company on the open market for $3,000,000, the book value at that date.
On January 1, 2017, Pound Company purchased new equipment for $58,000 from Sound Company. The equipment cost $36,000 and had an estimated life of five years as of January 1, 2017.
During 2018, Pound Company had merchandise sales to Sound Company of $400,000; the merchandise was priced at 25% above Pound Company's cost. Sound Company still owes Pound Company $70,000 on open account and has 20% of this merchandise in inventory at December 31, 2018. At the beginning of 2018, Sound Company had in inventory $100,000 of merchandise purchased in the previous period from Pound Company.
Required:
A. Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for the year ended December 31, 2018.
B. Assume that Sound Company reports net income of $160,000 for the year ended December 31, 2018. Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement for the year ended December 31, 2018.

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Definitions:

Internet-Related Firms

Companies whose primary business model is based on internet technologies, services, or platforms.

Market Dominates

When a single company or entity has a large enough share to control or influence the market terms, prices, and conditions significantly.

Near-Monopoly

A market structure where one firm predominates but does not solely control the market, allowing for minor competition.

Price Leadership

A situation where one company in an industry sets the price for its products, and other companies in the industry follow suit, often due to the dominance of the leading company.