Mirror Inc a US company acquires an 80 percent interest in S

Mirror Inc., a U.S. company, acquires an 80 percent interest in Silver Inc. on January 1, 2013 for $80 million in cash. The estimated fair value of the 20 percent noncontrolling interest in Silver is $18 million. Silver\'s book value at the date of acquisition is $10 million. Silver\'s recorded assets and liabilities are carried at fair value, but it has previously unrecorded intangibles valued at $20 million that are capitalizable. These intangibles have an estimated life of five years, straight-line. There are no identifiable intangible or goodwill impairments in either 2013 or 2014. Mirror uses the full equity method to account for its investment in Silver. It is now December 31, 2014, and the trial balance of the two companies is as follows Mirror Silver 35,000 $5,000 140,000 51,000 Current Assets PPE, net Intangibles Investment in Silver Current Liabilities Long-term debt Common stock, par value APIC RE, 1/1 Treasury stock Dividends Sales revenues Equity in net income of Silver Cost of goods sold Operating expenses 215,700 350,000 86,400 (50,000) (20,000) 600,000 (150,000) (100) (5,500) (17,500) 1,600 1,500 (800,000 (100,000) (500) (6,000) (25,000) 4,000 2,000 (1,600) 650,000 140,000 80,000 14,000 Required I. Calculate equity in net income of Silver for 2014, as reported on Mirror\'s books, and the noncontrolling interest in net income of Silver, as reported on the consolidated income statement for 2014. (5 points)

Solution

Assuming Amount given in balance sheet are in thousand Total Equity in NI (80%) Noncontrolling interest in NI (20%) Silver reported NI for 2014 $6,000.00 $4,800.00 $1,200.00 Revaluation write-off: Identifiable intangibles ($20,000/5) -$4,000.00 -$3,200.00 -$800.00 $2,000.00 $1,600.00 $400.00 Silver\'s Net income Sales $100,000.00 Less: COGS -$80,000.00 Less: Operating Expense -$14,000.00 Net Income $6,000.00