Question

Pie Corporation acquired 70 percent of Slice Company’s common stock on December 31, 20X5, at underlying book value. The book values and fair values of Slice’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Slice. Slice provided the following trial balance data at December 31, 20X5:

	Debit			Credit
Cash	$	28,200
Accounts Receivable		65,650
Inventory		89,400
Buildings and Equipment (net)		215,000
Cost of Goods Sold		103,300
Depreciation Expense		23,800
Other Operating Expenses		30,860
Dividends Declared		14,500
Accounts Payable				$	32,600
Notes Payable					127,000
Common Stock					87,000
Retained Earnings					125,500
Sales					198,610
Total	$	570,710		$	570,710

a. How much did Pie pay to purchase its shares of Slice?

b. If consolidated financial statements are prepared at December 31, 20X5, what amount will be assigned to the noncontrolling interest in the consolidated balance sheet?
  
c. If Pie reported income of $140,250 from its separate operations for 20X5, what amount of consolidated net income will be reported for 20X5?

d. If Pie had purchased its ownership of Slice on January 1, 20X5, at underlying book value and Pie reported income of $140,250 from its separate operations for 20X5, what amount of consolidated net income would be reported for 20X5?
  

Answer 1

ANSWER

Part A

Common stock of Slice Corporation on December 31, 20X5		87,000
Retained earnings of Slice Corporation:
January 1, 20X5	125,500
Sales for 20X5	198,610
Less: Expenses (103,300+23,800+30,860)	(157,960)
Dividends paid	(14,500)
Retained earnings of Slice Corporation on December 31, 20X5		151,650
Net book value on December 31, 20X5		238,650
Proportion of stock acquired by Pie		70%
Purchase price		$167,056

Part B

Net book value on December 31, 20X5	238,650
Proportion of stock held by noncontrolling interest	30%
Balance assigned to noncontrolling interest	$71,595

(amount actually comes to $71,595 but if we round up the purchase price to 167,056 noncontrolling interest to $71,595 )

Part C

Consolidated net income

140,250

None of the 20X5 net income of Slice Corporation was earned after the date of purchase and, therefore, none can be included in consolidated net income

Part D

Consolidated net income

$180,900

$180,900 [$140,250 + ($198,610- $157,960) ]

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