Question
In: Accounting
On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $310,500 when K-Tech’s...
On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $310,500 when K-Tech’s book value was $410,500. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $207,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5-year remaining life) was undervalued by $27,000.
In 2020, K-Tech reports $22,500 net income and declares no dividends. At the end of 2021, the two companies report the following figures (stockholders’ equity accounts have been omitted):
| French Company Carrying Amounts |
K-Tech Company Carrying Amounts |
K-Tech Company Fair Values |
|||||||||
| Current assets | $ | 625,000 | $ | 305,000 | $ | 325,000 | |||||
| Trademarks | 265,000 | 205,000 | 285,000 | ||||||||
| Patented technology | 415,000 | 155,000 | 182,000 | ||||||||
| Liabilities | (395,000 | ) | (125,000 | ) | (125,000 | ) | |||||
| Revenues | (905,000 | ) | (405,000 | ) | |||||||
| Expenses | 495,000 | 305,000 | |||||||||
| Investment income | Not given | ||||||||||
Note: Parentheses indicate a credit balance.
In 2021, assuming K-Tech has declared no dividends, what are the noncontrolling interest’s share of the subsidiary’s income and the ending balance of the noncontrolling interest in the subsidiary?
a) $34,640 and $245,280.
b) $31,960 and $250,640.
c) $26,600 and $234,480.
d) $40,000 and $216,000.
Solutions
Expert Solution
Answer :-
Option 'a' correct is $34,640 and $245,280.
| Non - controlling interest's share of the subsidiary's income | Amount |
| Revenue of solar company | $405,000 |
| Less : Expense | ( $305,000) |
| Less : Amortization on trademark(80,000/10 years) | ($8,000) |
| Less : Amortization on patent (27,000 / 5 years) | ($5,400) |
| Subsidary net income | $86,600 |
| NCI Share | 40% |
| Non - controlling interest's share of the subsidiary's income | $34,640 |
| Net asset book value | $410,500 | ||
| NCI | $207,000 | ||
| Parent | $310,500 | ||
| Difference | $107,000 | ||
| Asset | Differential value | useful life | Amortisation |
| Trademark | $80,000 | 10 | $8,000 |
| Patented technology | $27,000 | 5 | $5,400 |
| $13,400 |
| Non-controlling interest | ||
| Fair Value | $207,000 | |
| Share in net income | $9,000 | =$22,500*0.4 |
| Less: differential amortisation | -$5,360 | =13,400*0.4 |
| Balance 2020 | $210,640 | |
| Share in net income | $40,000 | =($410,500-$310,500)*.4 |
| Less: differential amortisation | -$5,360 | =$13,400*0.4 |
| Balance 2021 | $245,280 |
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