Multiple-Choice Questions on Multilevel Ownership
Musical Corporation acquires 80 percent of Dustin Corporation’s common shares on January 1, 20X2. On January 2, 20X2, Dustin acquires 60 percent of Rustic Corporation’s common stock.
Information on company book values on the date of purchase and operating results for 20X2 is as follows:
Company | Book Value | Purchase Price | 20X2 Operating Income |
Musical Corporation | $800,000 |
| $100,000 |
Dustin Corporation | 300,000 | $240,000 | 80,000 |
Rustic Corporation | 200,000 | 120,000 | 50,000 |
The fair values of the noncontrolling interests of Dustin and Rustic at the dates of acquisition were $60,000 and $80,000, respectively.
Required
Select the correct answer for each of the following questions.
1. Consolidated net income assigned to the controlling interest for 20X2 is
a. $180,000.
b. $188,000.
c. $194,000.
d. $234,000.
2. The amount of 20X2 income assigned to the noncontrolling interest of Rustic Corporation is
a. $0.
b. $20,000.
c. $30,000.
d. $50,000.
3. The amount of 20X2 income assigned to the noncontrolling interest of Dustin Corporation is
a. $10,000.
b. $16,000.
c. $22,000.
d. $26,000.
4. The amount of income assigned to the noncontrolling interest in the 20X2 consolidated income statement is
a. $20,000.
b. $22,000.
c. $42,000.
d. $46,000.
5. Assume that Dustin pays $150,000, rather than $120,000, to purchase 60 percent of Rustic’s common stock, and the fair value of the noncontrolling interest is $100,000 at the date of acquisition. If the differential is amortized over 10 years, the effect on 20X2 income assigned to the controlling shareholders will be a decrease of
a. $0.
b. $2,400.
c. $3,000.
d. $5,000.
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