On January 1 2012 Uncle Company purchased 80 percent of Neph

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000 in cash and other assets. Nephew had a book value of $828,000 and the 20 percent noncontrolling interest fair value was $170,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $348,250. Uncle’s appropriately adjusted book value as of that date was $1,127,500.

      Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $15,000 in dividends to shareholders each year and Nephew distributes $2,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

  Year

Uncle
Company

Nephew
Company

  2012

$

143,000    

$

34,400   

  2013

149,000    

59,200   

  2014

158,000    

62,200   

a.

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?

b.

What is the non controlling interest’s share of 2014 consolidated net income?

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000 in cash and other assets. Nephew had a book value of $828,000 and the 20 percent noncontrolling interest fair value was $170,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $348,250. Uncle’s appropriately adjusted book value as of that date was $1,127,500.

Solution

Answer a. Consideration transferred by Uncle    680,000.00 Non-Controlling Interest Fair Value    170,000.00 Total Fair Value - Nephew Company    850,000.00 Book Value    828,000.00 Intangible Assets      22,000.00 Amortization Expenses - Intangible Assets - $22,000 / 10 Years        2,200.00 Net Income - Nephew Company - 2014      62,200.00 Amortization Expenses - Intangible Assets      (2,200.00) Accrual Based Net Income      60,000.00 Uncle Company Share in Net Income of Nephew Company - 80%      48,000.00 Answer b. Accrual Based Net Income - Nephew Company      60,000.00 Dividends Declared by Uncle Company to Nephew Company - $15,000 X 30%        4,500.00 Income to Outside Owners      64,500.00 Non-Controlling Interest Share in Consolidated Net Income - $64,500 X 20%      12,900.00