Question

Pearl acquires 90% of the voting stock of Spruce on January 1, 2020 for $5,000. The fair value of the noncontrolling interest is $550. Spruce's equity is reported at $4,800 at the date of acquisition. Its net assets are reported at amounts approximating fair value, but it has previously unreported identifiable intangible assets (5-year life, straight-line), valued at $1,000. Pearl uses the complete equity method to account for its investment. Spruce reports net income of $300 for 2020.

On the 2020 consolidation working paper, what is the credit to noncontrolling interest in eliminating entry (R)?

	A.	$80
	B.	$65
	C.	$85
	D.	$70

Answer 1

Question Given That: 1 Pearl Acquires Spruce 2 Percentage Acquired 3 Date of Acquisition (DOA) 4 Amount of Acquisition 90% 01-01-2020 5,000.00 $ 550.00 4,800.00 $ 5 FV of NCI 6 Spruce's Equity on DOA Net Assets are reported at amounts 7 approximating fair value Unreported Identifiable intangible asset (5-year 8 life, straight-line) Pearl uses complete equity method to account for its investment 10 Spruce Net Income for 2020 1,000.00 $ 300.00

Answer The Credit to noncontrolling interest in eliminating entry on the 2020 consolidation working paper is $ 80/- 1 Calculation of Proportion Pearl's Share in Spruce 9096 Given NCI's Share in Spruce 2 Acquisition Value FV of NCI $ 550.00 Given FV of Spruce on DOA Formula to be used as follows: (FV of NCI / NCI's Share in Spruce) $ 5,500.00 Less: Value of Identifiable intangible Asset $ -1,000.00 Given Value of Balance Net Assets $ 4,500.00 This above calculated Value will be distributed to NCI @ 10% on DOC Refer Entry 4 3 Spruce's Equity on DOA $ 4,800.00 Given Add: Value of Identifiable intangible Asset I $ 1,000.00 Given Revised value of Equity $ 5,800.00 This above calculated Value will be distributed to NCI @ 10% on DOC Refer Entry 1 4 Value of Identifiable Intangible Asset $ 1,000.00 Given Less: Amortization of Identifiable intangible Asset (1000/5*1) $ -200.00 Revised value of Identifiable Intangible Asset U $ 800.00 This above calculated Value will be distributed to NCI @ 10% on DOC Refer Entry 3 5 Spruce Net Income for 2020* $ 300.00 Given This above calculated Value will be distributed to NCI @ 10% on DOC Refer Entry 2 *This net income for 2020 of $ 300 is assumed to be given after considering the amortization of Identifiable Intangible Asset (1000/5*1)

Journal Entries Date Particular Debit Rs. Credit Rs. 580.00 580.00 Dec-20 Equity of Spruce A/C Dr. Dec-20 To Non-Controlling Interest (Being equity of Spruce transferred to NCI at year- end 10% of $5,800/-) Dec-20 Net Income of Spruce A/C Dr. $ 30.00 30.00 Dec-20 To Non-Controlling Interest (Being Net Income of Spruce transferred to NCI at year-end 10% of $ 300/-) Dec-20 Non-Controlling Interest A/C Dr. $ 80.00 Dec-20 $ 80.00 To Identifiable Intangible Asset (Being value of Identifiable Intangible asset transferred to NCI under complete equity method for the year-end 10% of $ 800/-) $ 450.00 450.00 Dec-20 Non-Controlling Interest A/C Dr. Dec-20 To Identifiable Intangible Asset (Being value of Balance Net Assets transferred to NCI under complete equity method for the year-end 10% of $ 4,500/-)