On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capit
ID: 2472525 • Letter: O
Question
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $672,000 in cash and other assets. Nephew had a book value of $806,000 and the 20 percent noncontrolling interest fair value was $168,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $325,750. Uncle’s appropriately adjusted book value as of that date was $1,052,500.
Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $30,000 in dividends to shareholders each year and Nephew distributes $4,000 annually. Any excess fair-value allocations are amortized over a 10-year period.
Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary’s income recognized by Uncle in 2014?
What is the noncontrolling interest’s share of 2014 consolidated net income?
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $672,000 in cash and other assets. Nephew had a book value of $806,000 and the 20 percent noncontrolling interest fair value was $168,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $325,750. Uncle’s appropriately adjusted book value as of that date was $1,052,500.
Explanation / Answer
a.
b.
To the outside owners,the 9000 intra company dividend(30000×30%) declared by uncle are viewed as income because the book value of nephew increase
Thus the Non controlling interest share of income is computed as folloWS;
Consideration transferred by uncle 672000 Non controlling interest fair value 168000 Nephew business fair value 840000 Book value 806000 Intangible assets 34000 Life 10 years Amortization expenses(annual) 3400 Net income reported by nephew-2014 68200 Amortization expenses(above) (3400) Accrual based income 64800 Uncle ownership percentage 80% Net income of subsidiary recognized by uncle 51840Related Questions
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