Noncontrolling Interest
Sanderson Corporation acquired 70 percent of Kline Corporation’s common stock on January 1, 20X7, for $294,000 in cash. At the acquisition date, the book values and fair values of Kline’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 Kline. The stockholders’ equity accounts of the two companies at the date of purchase are:
| Sanderson Corporation | Kline Corporation |
Common Stock ($10 par value) | $400,000 | $180,000 |
Additional Paid-In Capital | 222,000 | 65,000 |
Retained Earnings | 358,000 | 175,000 |
Total Stockholders’ Equity | $980,000 | $420,000 |
Required
a. What amount will be assigned to the noncontrolling interest on January 1, 20X7, in the consolidated balance sheet?
b. Prepare the stockholders’ equity section of Sanderson and Kline’s consolidated balance sheet as of January 1, 20X7.
c. Sanderson acquired ownership of Kline to ensure a constant supply of electronic switches, which it purchases regularly from Kline. Why might Sanderson not feel compelled to purchase all of Kline’s shares?
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