Assume that on January 1, 2018, a parent company acquired an 85% interest in a subsidiary's...
Assume that on January 1, 2018, a parent company acquired an 85% interest in a subsidiary's voting common stock. On the date of acquisition, the fair-value of the subsidiary's net assets equaled their reported book values except for machinery and equipment, which had a fair value of $780,000 and a reported book value of $325,000. the machinery and equipment had a 5-year remaining useful life and no salvage value. The following are the highly summarized pre-consolidation income statements of the parent and subsidiary for the year ended December 31, 2019:
Income Statement Parent Subsidiary
Revenues $2,808,000 $374,400
Equity income 81,770 -
Expenses (1,872,000) (187,200)
Net income $1,017,770 $187,200
For the year ended December 31, 2019, what amounts will be reported for (1) consolidated net income and (2) net income attributable to the noncontrolling interest, respectively, in the parent's consolidated financial statements?
a. $1,032,200 and $14,430
b. $1,017,770 and $14,430
c. $1,045,850 and $28,080
d. $1,204,970 and $28,080
Homework Answers
Answer : a. $1,032,200 and $14,430.
Explanation :
AAP amortization (yearly)
= [Fair value of machinery and equipment - Book value of machinery and equipment] / Remaining useful life
= ($780,000 - $325,000) / 5 years
= $91,000
Net income attributable to the non controlling interest = [Net income of subsy - AAP amortization (yearly)] * 15 %
= ($187,200 - $91,000) * 15 %
= $96,200 * 15 %
= $14,430
Consolidated net income = Net income of Parent + Net income attributable to the non controlling interest
= $1,017,770 + $14,430 = $1,032,200
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