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Presentation of income tax and net income attributable to noncontrolling interest
FSP Corp has a 70% ownership interest in Subsidiary B. The other 30% is owned by an unrelated party. FSP Corp consolidates the financial statements of Subsidiary B. FSP Corp has pretax income from continuing operations of $500 for the year ended December 31, 20X7. This amount includes $200 of pretax income from continuing operations from Subsidiary B. FSP Corp’s tax rate for the period is 25%. For purposes of this example, the tax effects of any outside basis differences have been ignored, and Subsidiary B is assumed to have no subsidiaries of its own.
How should income tax expense and net income be determined and presented in the consolidated financial statements?

Analysis

Assuming Subsidiary B is a C-corporation with a 25% tax rate, income tax expense and net income would be calculated and presented as follows:
 Income from continuing operations, before tax 
 $500 
 Income tax expense 
 1251
 Net income 
 375 
 Less: Net income attributable to noncontrolling interest 
 452
 Net income attributable to FSP Corp 
 $330 
View table
 Calculated as $500 x 25%
2 Calculated as ($200 – (200 x 25%)) x 30%
Assuming Subsidiary B is a partnership, income tax expense and net income would be calculated and presented as follows:
 Income from continuing operations, before tax 
 $500 
 Income tax expense 
 1103
 Net income 
 390 
 Less: Net income attributable to noncontrolling interest 
 604
 Net income attributable to FSP Corp 
 $330 
View table
3 Calculated as ($500 – (200 x 30%)) x 25%
4 Calculated as $200 x 30%
If the subsidiary is a partnership, income attributable to noncontrolling interest should be disclosed as a reconciling item in FSP Corp’s tax rate reconciliation, if material.
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