Question

E 4-2 Consolidated statement items with equity method Corporation purchased 80 percent of the outstanding voting common stock of Son Corporation on January 2, 2016 for $1,200,000 cash. Son's balance sheets on this date and on December 31, 2016. are as follows: SON CORPORATION BALANCE SHEETS January 2 December 31 Inventory $ 200.000 $ 80.000 Other current assets 200,000 320,000 Plant assets-net 800,000 880.000 Total assets $1,200,000 $1.280,000 Liabilities $ 200.000 $ 240.000 Capital stock 600.000 600,000 Retained earnings 400.000 440,000 Total equities $1,200,000 $1,280,000 ADDITIONAL INFORMATION 1. Pop uses the equity method of accounting for its investment in Son. 2. Son's 2016 net income and dividends were $280,000 and $240,000, respectively. 3. Son's inventory, which was sold in 2016, was undervalued by S50,000 at January 2, 2016 REQUIRED 1. What is Pop's income from Son for 2016? 2. What is the noncontrolling interest share for 2016?

Answer 1

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Working Note:
Investment cost January 2	$                                                                                                                                      1,200,000
Implied total fair value of Son ($1,200,000 / 80%)	$                                                                                                                                      1,500,000
Less: Book value	$                                                                                                                                   (1,000,000)
Excess fair value over book value	$                                                                                                                                         500,000
Excess allocated to:
Inventory	$                                                                                                                                            50,000
Remainder to goodwill	$                                                                                                                                         450,000
Excess fair value over book value	$                                                                                                                                         500,000
Part 1
Income from Son
Son’s reported net income	$                                                                                                                                         280,000
Less: Excess allocated to inventory (sold in 2016)	$                                                                                                                                         (50,000)
Son’s adjusted income	$                                                                                                                                         230,000
Pop’s 80% share	$                                                                                                                                         184,000
Part 2
Non-controlling interest share
Son’s adjusted income 20% of $230,000	$                                                                                                                                            46,000
Part 3
Non-controlling interest December 31
Son’s equity book value	$                                                                                                                                      1,040,000
Add: Unamortized excess (Goodwill)	$                                                                                                                                         450,000
Son’s equity fair value	$                                                                                                                                      1,490,000
20% Non-controlling interest	$                                                                                                                                         298,000
Part 4
Investment in Son December 31
Investment cost January 2	$                                                                                                                                      1,200,000
Add: Income from Son (given)	$                                                                                                                                         200,000
Less: Dividends $240,000*80%	$                                                                                                                                       (192,000)
Investment in Son December 31	$                                                                                                                                      1,208,000
Part 5
Non-controlling interest share ($200,000/80%*20%)	$                                                                                                                                            50,000
Consolidated net income	$                                                                                                                                         720,800
	$                                                                                                                                         770,800