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Nikolay [14]
3 years ago
9

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 to

tal 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?
Business
1 answer:
arlik [135]3 years ago
7 0

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)

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Answer:

Rosie Dry Cleaning

a. Organization of the transaction data in accounts under an accounting equation:

Year 1:

The accounting equation is Assets = Liabilities + Equity.

1) Provided $29,940 of cleaning services on account.

Assets (Accounts Receivable) increases by $29,940; Equity (Retained Earnings) increases by $29,940.  So, Assets + $29,940 = Liabilities + Equity + $29,940.

2) Collected $23,952 cash from accounts receivable.

Assets (Cash) increases by $23,952 and Assets (Accounts Receivable) decreases by $23,952.  So, Assets + $23,952 and - $23,952 = Liabilities + Equity.

3) Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Assets (Accounts Receivable) reduces by $59.88 and Equity (Retained Earnings) reduces by $59.88.  So, Assets - $59.88 = Liabilities + Equity - $59.88.

Year 2:

1. Wrote off a $225 account receivable that was determined to be uncollectible.

Assets (Accounts Receivable) decreases by $225 and Equity (Retained Earnings) decreases by $225.  So, Assets - $225 = Liabilities + Equity - $225.

2. Provided $34,940 of cleaning services on account.

Assets (Accounts Receivable) increases by $34,940 and Equity (Retained Earnings) increases by $34,940.  So, Assets + $34,940 = Liabilities + Equity + $34,940.

3. Collected $30,922 cash from accounts receivable.

Assets (Cash) increases by $30,922 and Assets (Accounts Receivable) decreases by $30,922.  So, Assets + $30,922 - $30,922 = Liabilities + Equity.

4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Assets (Accounts Receivable) decreases by $37.93 ($97.81 - $59.88) and Equity (Retained Earnings) decreases by $37.93.  So, Assets - $37.93 = Liabilities + Equity - $37.93.

b. 1) Net Income for Year 1:

Sales = $29,940

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Total = $29,880.12

2) Net Cash Flows from operating activities for Year 1 = $23,952.

3) Balance of Accounts Receivable at the end of Year 1:

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Less Cash Receipt = $23,952

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4) Net Realizable value of accounts receivable at the end of Year 1.

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c 1) Net Income for Year 1:

Sales = $34,940

less Bad Debts Expense = $262.93 ($37.93 + $225)

Total = $34,677.07

2) Net Cash Flows from operating activities for Year 1 = $30,922.

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Less Cash Receipt = $30,922

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4) Net Realizable value of accounts receivable at the end of Year 1.

Accounts Balance = $9,781

less Allowance for Uncollectible = $97.81

Net Realizable = $9,683.19

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The accounting equation states that Assets equal Liabilities plus Equity.  Any change in one side of the equation affects the other.  Sometimes, a transaction or event affects one side only by increasing one account and decreasing another account on the same side of the equation.  Examples are demonstrated in the answer above.

When an uncollectible is deemed bad, it reduces the Accounts Receivable and increases the bad debt expense.  The overall effect on the accounting equation is a reduction in Assets and Equity respectively.

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