Elimination of intercompany profits for variable interest entities (VIEs) and voting interest entities

Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $245,000 cash. The fair value of the 65 percent interest not acquired by the Reporting Company is $455,000. The fair value and book value of the identifiable net assets of the Legal entity equals $700,000. The Reporting Company has a right to 35 percent of the reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported the following pre-consolidation income statements assuming that the Reporting Company applies the equity method:

Reporting Company VIE Sales $770,000 $210,000 Costs of goods sold (462,000) {140,000} Gross profit 308,000 70,000 Operating expenses (123,200) (21,000) Equity method income (loss) from VIE (24,850) 0 Net income $159,950 $49,000 Reporting company's portion of VIE's net income Impact of intercompany sales in equity income Equity method income (loss) from VIE Consolidated net income Consolidated net income attributable to noncontrolling interest Consolidated net income attributable to controlling interest