Question

A company had common stock with a total par value of $18,000,000 and fair value of $62,000,000; and 7% preferred stock with a total par value of $6,000,000 and a fair value of $8,000,000. The book value of the company was $85,000,000. Assuming ninety percent (90%) of the company’s total equity is acquired, what amount must be attributed to the noncontrolling interest?

Answer 1

Answer:

$7,000,000

Explanation:

Accounting for Non-Controlling Interest requires measurement of stock at Fair Value.

Total fair value of firm = Fair value of common stock + Fair value of preferred stock

= $62,000,000 + $8,000,000

= $70,000,000

90% of equity represent the extent of controlling interest in the firm. Thus, remaining 10% will be the value of non-controlling interest.

As already discussed, non controlling interest requires measurement at fair value:

Non-Controlling Interest = Total Fair Value x Percentage of Non-Controlling Interest

= $70,000,000 x 10%

= $7,000,000 (Answer)