Question

P7-24 Computation of Consolidated Net Income LO 7-3, 7-4 Package Corporation acquired 90 percent ownership of Sack Grain Company on January 1, 20X4, for $122,400 when the fair value of Sack's net assets was $20,000 higher than its $116,000 book value. The increase in value was attributed to amortizable assets with a remaining life of 10 years. At that date, the fair value of the noncontrolling interest was equal to $13,600. During 20X4, Sack sold land to Package at a $6,500 profit. Sack Grain reported net income of $21,000 and paid dividends of $4,400 in 20X4. Package reported income, exclusive of its income from Sack Grain, of $37,000 and paid dividends of $15,300 in 20X4. Required: a. Compute the amount of income assigned to the controlling interest in the consolidated income statement for 20X4. Controlling interest b. By what amount will the 20X4 income assigned to the controlling interest increase or decrease if the sale of land had been from Package to Sack Grain, the gain on the sale of land had been included in Package's $37,000 income, and the $21,000 was income from operations of Sack Grain? Reported income will

Answer 1

Requirement (a) Net Income reported by Sack Grain (-) Dividends paid (assumed out of post acquisition profits) (-) Gain on sale of land Income considered for consolidation from Sack Grain Controlling interest on the above (10100*90%) Net Income reported by Package Total Controlling interest $ $ $ $ $ $ $ 21,000 -4,400 -6,500 10,100 9,090 37,000 46,090 Hence, the controlling interest in the consolidated income statement is $ 46,090. Requirement (b) Net Income reported by Sack Grain (-) Dividends paid (assumed out of post acquisition profits) Income considered for consolidation from Sack Grain Controlling interest on the above (16600*90%) Net Income reported by Package (-) Gain on sale of land Total Controlling interest $ $ $ $ $ $ $ 21,000 -4,400 16,600 14,940 37,000 -6,500 45,440 Hence, the controlling interest in the consolidated income statement is $ 45,440. The reporting income will decrease by $ 650.