Question

On 1/1/22 Big Co acquired 60% of Little Co voting stock for $300,000. The fair value of the NC Interest was $200,000 on that date. Little's book value was $500,000, and all assets and liabilities had fair values equal to book value.
During 2022, Little reported earnings of $70,000 and paid dividends of $20,000.
1. What was Big's "investment income" ("Income from Little") for 2022? (xx,xxx)
2. What was the "income to the NC Interest" ("NCI in Net Income") for 2022? (xx,xxx)
3. After recording the equity method entries for the year, what was the end of year balance in the "Investment in Little" reported on Big's ledger? (xxx,xxx)
4. What was value of the NC Interest ("NCI in NA of Little") reported on the 12/31/22 Consolidated Balance Sheet? (xx,xxx)

Answer 1

Answer:

1. Particulars                                           Amount

Reported net income of Little               $70,000

Multiply: Ownership share of Big Co       60%

Investment income (from Little)          $42,000

2. Particulars                                                     Amount

Reported net income of Little                         $70,000

Multiply: non-controlling share (100%-60%)      40%

Income to the NC Interest                               $28,000

3. Particulars                                                     Amount

Investment in Little at beginning                     $300,000

Investment income (from Little)                       $42,000

Less: Dividends received (20000*60%)         $(12,000)

Investment in Little at end of year balance $330,000

4. Particulars                                                                Amount

NC Interest at beginning                                            $200,000

Income to the NC Interest                                          $28,000

Less: Dividends paid to NC Interest (20000*40%)   $(8,000)

NC Interest reported on the 12/31/22                      $220,000

Consolidated Balance Sheet