Question

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000.
One year later, the following selected figures were reported by the two companies.Additionally, no dividends have been paid.
Rovce Co. Park Co.
Book Value Book Value Fair Value
Current assets 868,000 420,000 448,000
Equipment 364,000 280,000 400,000
Buildings 574,000 210,000 210,000
Liabilities (546,000) (168,000) (168,000)
Revenues (1,260,000) (560,000)
Expenses 700,000 420,000
Investment income Not Given
1. What is consolidated net income for 2011 atributable to Royce's controlling interest?
2. What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31 2011 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2011?

Answer 1

Answer:

1. Parent Income = Revenue - Expenses

Parent Income = $1260000 - $700000

Parent Income = $560000

Sub-Income = Revenue - Expenses

Sub-Income = 560000 - 420000

Sub-Income = 140000 * 60% ownership

Sub-Income = $84000

Excess Amortization = (140000 / 10) * (60%)

Excess Amortization = $8400

Consolidated Net Income = $560,000 + $84,000 - $8,400

Consolidated Net Income = $635,600

2. Sub-Income = Revenue - Expenses

Sub-Income = 560000 - 420000

Sub-Income = 140000 * 40% ownership

Sub-Income = $56000

Excess Amortization = (140000 / 10) * (40%)

Excess Amortization = $5600

Non Controlling Interest share = 56000 - 5600

Non Controlling Interest share = $50400

Non Controlling Interest at acquisition date = 700000 * 40%

Non Controlling Interest at acquisition date = $280000

Non Controlling Interest during 2015 = $56000  

Excess Amortization = $5600

Balance of Interest = $280,000 + $56,000 - $5,600

Balance of Interest = $330,400