Question
In: Accounting
Pizza Corporation acquired 75 percent of Slice Corporation’s voting common stock on January 1, 20X4, for...
Pizza Corporation acquired 75 percent of Slice Corporation’s voting common stock on January 1, 20X4, for $353,000, when the fair value of its net identifiable assets was $466,000 and the fair value of the noncontrolling interest was $113,000. Slice reported common stock outstanding of $110,000 and retained earnings of $230,000. The excess of fair value over book value of Slice’s net assets was attributed to amortizable assets with a remaining life of 10 years. On December 31, 20X4, Slice sold a building to Pizza and recorded a gain of $30,000. Income assigned to the noncontrolling shareholders in the 20X4 consolidated income statement was $17,000.
a. Compute the amount of net income Slice reported for 20X4.
b. Compute the amount reported as consolidated net income if Pizza reported operating income of $236,000 for 20X4.
c. Compute the amount of income assigned to the controlling interest in the 20X4 consolidated income statement.
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Expert Solution
Answer:
Computation of annual amortization:
| Fair value of 75% Acquisition | 353000 |
| Fair value of non controlling interest | 113000 |
| Total Fair value | 466000 |
| Less: Book value (110000+230000) | 340000 |
| Differential paid by Bold | 126000 |
| Number of years in amortization period | 10 |
| Annual Amortization | 12600 |
a) Net Income Toll reported for 20X4:
| Non Controlling Interest | 17000 |
| Add: Unrealized profit on building (30000*25%) | 7500 |
| Amortization of differential (12600*25%) | 3150 |
| Income assigned to noncontrolling interest before adjustment | 27650 |
| Net Income Slice reported for 20X4 (27650/25%) | 110600 |
b) Consolidated net income for 20X4:
| Pizza Corporation operating income | 236000 |
| Slice Corporation net income | 110600 |
| Amortization of differential (126000/10 years) | -12600 |
| Unrelized profit on building | -30000 |
| Consolidated net income | 304000 |
c) Income assigned to controlling interest:
| Consolidted net income | 304000 |
| Less: Non controlling interest | 17000 |
| Income assigned to controlling interest: | 287000 |
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