Question

In: Accounting

part 1 On January 1, Year 1, Giant bought 80% of the shares of Son for...


part 1
On January 1, Year 1, Giant bought 80% of the shares of Son for $20 million. At the time, the fair value of the 20 % noncontrolling interest was $4 million.
The equity of Son on the date of acquisition was $16 million. Its common stock =$1 million and retained earnings =$15 million. All assets and liabilities had fair value equal to book value, except Son owned a building with a fair value $ of $30 million and a book value of $25 million. It has 10 years of remaining life and no salvage value.
During Year 1, Son reported revenues of $5 million and expenses of $3 million. It declared dividends of $300,000. Giant had net income from its own operations (ignoring its interest in Son) of $50 million.
As of the date of acquisition, what consolidation entry or entries are needed? Show your work.

part 2
At the end of the year, what is the amount of income that is allocable to the controlling interest, that is, the shareholders of the parent company?

Solutions

Expert Solution

Date Particulars Debit ($) Credit ($)
Investment in son 20000000
Bank 20000000
(To record investment made in Son company)
Entry on the year end:
Date Particulars Debit ($) Credit ($)
Bank 300000
     Dividend from son 300000
(To record dividend received from son)
Dividend from son 300000
     Investment in son 300000
(To record acwuisition dividend reducing the value of the investment)
Goodwill 2900000
     Profit & loss 2900000
(To record goodwill created)
Pariculars Date of Acquistion Date of consolidation Retained Earnings
Equity Shares 12800000 12800000 -
Retained Earning 3200000 3200000 -
Profits - 1700000 1700000
Revaluation of Building 5000000 5000000
Depreciation on the aove - -500000 -500000
Net assets 21000000 22200000 1200000
Percentage 80% 20% 80%
Share of Net assets 16800000 4440000 960000
Rectified value of investment 19700000
Goodwill 2900000

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