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Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2011,...

Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2011, for $840,000. The subsidiary's total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value in excess of Sabathia's book value was assigned to a patent with a 5-year remaining life. On January 1, 2013, Posada reported $1,085,000 equity method balance in the investment in Sabathia Company account. On October 1, 2013, Posada sells 1,000 shares of its investment for $191,000. During 2013, Sabathia reported net income of $120,000 and pad dividends of $40,000. These amounts are assumed to have occurred evenly throughout the year.

a. What is the balance in investment account as of the October 2013 sale?

b. Calculate the effect (profit or loss) from the sale of the 1,000 shares.

c.) What is the balance in investment account after the sale ?

d.) Calculate the non-controlling interest in Sabathia Co. as of December 31, 2015. Show calculations.

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Answer #1

a)Calculation of the balance in investment account as of the October 2013 before sale

Particulars Amount($)
Investment balance as on 1st January,2013 1085000

Add: Share of profit for 9 months of 2013

{(120000/12)*9*70%}

 63000

Less: Amortization of acquisition premium for 9 month

{(70000/5)*(9/12)*70%}

 (7350)
Investment balance as on 1st October 2013 1140650

b)Calculation of the effect from the sale of the 1000 shares

Particulars Amount($)
Number of shares as on 1st October,2013 7000

Value per share

{1140650/7000}

 162.95
Number of shares sold 1000

Value of investment sold

{Number of shares sold*value per share}

 162950
Less: sales consideration of investment sold 191000
Gain on sale of investment 28050


c)Calculation of the balance in investment account after sale

Particulars Amount($)
Investment balance as on 1st January,2013 1085000

Add: Share of profit for 9 months of 2013

{(120000/12)*9*70%}

 63000

Less: Amortization of acquisition premium for 9 month

{(70000/5)*(9/12)*70%}

 (7350)
Investment balance as on 1st October,2013 1140650

Less: Cost of sales of investment

{(1140650/7000)*1000}

 162950
Balance after sale of investment 977700

d)Calculation of the non- controlling interest in Sabathia co. As of December 31,2015

Particulars Amount($)
Balance of investment as on1st October,2013 after sale of investment 977700

Add: Share of profit for 3 month of 2013

{120000*(3/12)*60%}

 18000

Less: Proportionate dividend received

{40000*60%}

 (24000)

Less: Amortization of acquisition premium for 3 month

{(70000/5)*(3/12)*60%}

 (2100)
Balance of investment as on 31st December 2013 969600

Non-Controlling interest share on 31st December 2013

{(969600/ 60 )*40}

 646400

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DO VOTE, ALL THE BEST

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