Magellan Corporation acquired 80 percent ownership of Dipper Corporation on Janu
ID: 2341898 • Letter: M
Question
Magellan Corporation acquired 80 percent ownership of Dipper Corporation on January 1, 20X8, for $200,000. At that date, Dipper reported common stock outstanding of $75,000 and retained earnings of $150,000. The fair value of the noncontrolling interest was $50,000. The differential is assigned to equipment, which had a fair value $25,000 greater than book value and a remaining economic life of five years at the date of the business combination. Dipper reported net income of $40,000 and paid dividends of $20,000 in 20X8.
Internally, before the consolidation, Magellan accounts for its investment in Dipper using the equity method.
On January 1, 20X9, right after the consolidation for 20X8, what is the remaining differential assigned to equipment (at net amount)?
A. 25,000
B. 20,000
C. 5,000
D. 0
Which of the following statement is correct?
A. The basic elimination entries include the following entries
Cr. Common Stock 75,000
Cr. Retained Earnings 150,000
B. The basic elimination entries include the following entries
Dr. NCI in NA of Dipper 49,000
Cr. NCI in NI of Dipper 8,000
C. If there is Goodwill associated with the acquisition, in the consolidation process, Magellan will record 80% of the Goodwill and the 20% will be allocated to “NCI in NA of Dipper.” In other words, the consolidated balance sheet will show Goodwill at 80% of its total value, and the remaining 20% of goodwill is included in NCI in NA.
D. In the consolidation process, the purchase differential that is assigned to equipment will be allocated to both Magellan and the Non-controlling interest, with 100% presented on the consolidated financial statements and 20% included in NCI’s portion.
Explanation / Answer
1. Begining differential in 2019 would be 25000-5000 = $ 20000
2. In the consolidation process, the purchase differential that is assigned to equipment will be allocated to both Magellan and the Non-controlling interest, with 100% presented on the consolidated financial statements and 20% included in NCI’s portion.
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