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In: Accounting

Pawn Corporation acquired 70 percent of Shop Corporation's voting stock on January 1, 20X2, for $416,500....

Pawn Corporation acquired 70 percent of Shop Corporation's voting stock on January 1, 20X2, for $416,500. The fair value of the noncontrolling interest was $178,500 at the date of acquisition. Shop reported common stock outstanding of $200,000 and retained earnings of $350,000. The differential is assigned to buildings with an expected life of 15 years at the date of acquisition.

On December 31, 20X4, Pawn had $25,000 of unrealized profits on its books from inventory sales to Shop, and Shop had $40,000 of unrealized profit on its books from inventory sales to Pawn. All inventory held at December 31, 20X4, was sold during 20X5.

On December 31, 20X5, Pawn had $14,000 of unrealized profit on its books from inventory sales to Shop, and Shop had unrealized profit on its books of $55,000 from inventory sales to Pawn.

Pawn reported income from its separate operations (excluding income on its investment in Shop and amortization of purchase differential) of $118,000 in 20X5, and Shop reported net income of $65,000.

Required:
Compute consolidated net income and income assigned to the controlling interest in the 20X5 consolidated income statement.

Solutions

Expert Solution

ANSWER;

1    Computation of Consolidated net income and income assigned to controlling interest
Operating Income for Master for 20*5 $118,000
Net Income of Crown for 20*5 $65,000
$183,000
ADD Prior Yr Profits realized by Master $25,000
   Prior Yr Profits realized by Crown $40,000
LESS Unrealized profits for 20*5 by Master $14,000
Unrealized profits for 20*5 by Crown $55,000
Amortization of differential
($416,500-$200,000-$350,000+$178,000)
45000/15 yrs $3,000
Consolidated Net Income 20*5 $176,000
LESS   Income to non Controlling interest
   ($65,000+$40,000-$55,000-$3,000)*3 $14,100
Income to controlling Interest $161,900

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ekkarill92 answered 5 months ago
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