Rossi Corp. purchased 55 percent of the common shares of Gatineau Ltd. in Year 3. Rossi and Gatineau reported sales of $200,000 and $120,000, respectively, in Year 4. Sales increased to $240,000 and $560,000 for the two companies in Year 5. The average profit margins of the two companies was 60 percent and 10 percent, respectively, for each of the two years. 

Rossi’s treasurer was aware that the subsidiary was awarded a major new contract in Year 5 and anticipated a substantial increase in net income for the year. She was disappointed to learn that consolidated net income attributable to the controlling interest had increased by only 38 percent even though the combined sales of the two companies increased by 250 percent.

Required 

Prepare a memo to the treasurer explaining how consolidated net income is computed and how it is segregated between the parent company and noncontrolling interest. To support your explanation, include a consolidated income statement for Year 4 and Year 5.