Question

Consolidated Net Income

The following information relates to Caleres Inc. and its 51 percent-owned subsidiary, B&H Footwear, for fiscal 2019.

Caleres Inc.'s net income from its own operations	50,000
B&H Footwear's net income from its own operations	20,000
Dividends paid by B&H Footwear	8,000
Acquisition date overvaluation of inventory sold in fiscal 2019	900
Reduction in depreciation expense on equipment overvalued at acquisition date	300
Amortization of discount on long-term debt created at acquisition date	100
Impairment loss on in-process R&D capitalized at acquisition date	600
Confirmed downstream inventory profit in B&H Footwear's beginning inventory	700
Unconfirmed downstream inventory profit in B&H Footwear's ending inventory	400
Downstream loss on January 02 sale of patent to B&H Footwear; 5-year life	500

Required:

A. Calares uses the complete equity method to account for its investment in B&H Footwear on its own books. Prepare a schedule calculating equity in net income of B&H, appearing on Calares books, and noncontrolling interest in consolidated net income, appearing on the consolidated income statement for fiscal 2019.

B. Prepare a schedule calculating consolidated net income and consolidated net income to the controlling interest for fiscal 2019

Answer 1

A.

In its own books, Calares will record income of $10,200 (ie 51% of B&H Footwear's net income $20,000). The dividend received by Calares from B&H will be recorded as a credit in its investment in B&H account.

Non Controlling interest in consolidated net income will be, 49% of Net income of B&H - Dividend paid, ie. 49% of ($20,000-$8000) = $5,880

B.

Schedule of Consolidated Income	Amount $ +/(-)	Notes
Caleres Inc.'s net income from its own operations	50,000
B&H Footwear's net income from its own operations	20,000
Acquisition date overvaluation of inventory sold in fiscal 2019	900	Consolidation effect
Reduction in depreciation expense on equipment overvalued at acquisition date	300	Consolidation effect
Amortization of discount on long-term debt created at acquisition date	(100)	Consolidation effect
Impairment loss on in-process R&D capitalized at acquisition date	(600)	Consolidation effect
Confirmed downstream inventory profit in B&H Footwear's beginning inventory	(700)	Intercompany gain elimination
Unconfirmed downstream inventory profit in B&H Footwear's ending inventory	(400)	Intercompany gain elimination
Downstream loss on January 02 sale of patent to B&H Footwear; 5-year life	500	Intercompany loss elimination
Dividend to outsiders (49% of $8000)	(3,920)
Consolidated Net Income	65,980
Less: Share of non controlling interest	5,880
Net Income to the controlling interest	60,100